Questions and Answers of Taxation of Individuals

Stuart is a member of a registered pension scheme. He took no benefits from this or any other scheme until February 2021, when he received a lump sum of £320,000 and began to receive a pension of
(a) Warren's liability to income tax and Class 4 NICs for tax year 2019-20 was £17,200, of which £14,500 was paid via PAYE.(i) Compute his POAs for 2020-21 and state the dates on which these fall
Barbara's liability to income tax and Class 4 NICs for tax year 2019-20 was £26,000, of which £4,000 was paid by deduction at source. Her liability for 2020-21 is £30,000, of which £1,000 has
Barbara (see Example 2 above) makes the following payments for 2020-21:Compute the late payment penalties (if any) which Barbara would incur and state the dates by which these penalties should be
Barbara (see Examples 2 and 3 above) pays all of her late payment penalties on 4 March 2023. Calculate the total interest payable by Barbara in relation to her income tax and Class 4 NICs for
For each of the following taxpayers, state the dates on which the 2020-21 income tax is due to be paid and calculate the amount payable on each date. (Ignore Class 4 NICs).(a) Guy's 2019-20 income
Dorothy's income tax and Class 4 NICs liability for 2019-20 was £24,600, of which £600 was deducted at source. Her liability for 2020-21 is £28,000, of which none is deducted at source. She made a
Jabran did not receive a notice to file a tax return for 2019-20 but he was aware that he had income which had not been assessed to tax. He notified HMRC of this fact on 2 October 2020 and a return
Frances paid income tax and Class 4 NICs of £47,000 for tax year 2019-20, of which £19,000 was paid via the PAYE system. Her total liability for 2020-21 is £69,000, of which £21,000 is paid via
In April 2020, HMRC issues a notice requiring an individual to submit a tax return for the year 2019-20. The return is submitted electronically to HMRC on 8 December 2020.(a) State the date by which
For your state, list the forms that are required to be filed when a pass-through entity incorporates or when a corporation converts to a pass-through entity. Give statutory citations for the
On May 5, 2015, Christy purchased and placed in service a hotel. The hotel cost $10.8 million. Calculate Christy’s cost recovery deductions for 2015 and for 2025.
During March 2015, Sam constructed new agricultural fences on his farm. The cost of the fencing was $80,000. Sam does not elect immediate expensing under § 179 and he does not claim any available
Newton, a business owner, signed a ten-year lease beginning in July of 20X14, and immediately paid rent for the remainder of 20X14, all of 20X15, and all of 20X16. How much of the rent paid at the
Quanti Co., a calendar-year taxpayer, purchased equipment for $5,000 on December 21, 20X14, representing the company’s only purchase of tangible personal property that took place during 20X14. On
Joe purchased a van on February 1, 20X4 for use in his business, Crew Airport Transport. The van was purchased for $30,000, has an estimated useful life of 10 years, and a salvage value of $2,000. No
Dolly purchased and placed into service qualifying depreciable property in 20X4 at a total cost of $2,250,000. Dolly has elected to take the Section 179 deduction. What is Dolly’s Section 179
Orange, Inc., a calendar-year C corporation, has $800,000 of qualified production activities income (QPAI) and $950,000 of total taxable income in 20X14. All of the QDPAI was produced by Orange’s
Mary, a single taxpayer with two dependent children, has the following items of income and expense during 2015:a. Determine Mary’s taxable income for 2015.b. Determine Mary’s NOL for 2015. Gross
Glenn and Mary’s house was damaged by a hurricane in 20X4. The fair value of their home before the hurricane was $150,000. After the hurricane, the fair value of their home was $125,000. They
Hank’s home is burglarized on December 22, 20X14. Personal property with a fair market value of $40,000 and an adjusted basis to Hank of $25,000 is stolen. Hank paid an independent appraiser $700
On the night of October 14, 20X14, a hurricane caused serious damage to Paige’s personal vehicle and to the roof of her personal residence, a townhome. Just prior to the hurricane, Paige had a
Lee, a married individual, is an employee with three rental properties in which Lee does not actively participate. In 20X14, Property 1 had a net loss of $10,000, Property 2 had a net gain of
Ruth Ames died on January 10, 2015. In filing the estate tax return, her executor, Melvin Sims, elects the primary valuation date and amount (fair market value on the date of death). On March 12,
Kellye purchased her home in 20X4 for $140,000. After living in it for five years, she sold it in 20X9 for $170,000, its market value. What is the tax treatment of the sale of Kellye’s home?a. A
On June 1, 20X13, Gary gave Gertrude a gift of stock worth $10,000, paying no gift tax on the transaction. Gary had purchased the stock for $7,500 in 20X11. On October 1, 20X13, Gertrude sold the
Sengupta died on February 1, 20X14, and bequeathed two different assets to a beneficiary, Roberts. Asset One was distributed to Roberts on April 24, 20X14; Asset Two was distributed to Roberts on
Clyde had worked for many years as the chief executive of Red Industries, Inc., and had been a major shareholder. Clyde and the company had a falling out, and Clyde was terminated. Clyde and Red
Keller is a single individual who in 20X14 qualified for a foreign earned income exclusion of $80,000. Keller’s 20X14 net investment income was $25,000, and Keller’s 20X14 Adjusted Gross Income
Aaron, age 55, has an adjusted gross income in 20X4 of $30,000. His expenses are as follows:What is Aaron’s itemized deduction for medical expenses?a. $0b. $1,500c. $2,000d. $4,500 Non-prescription
Zunilda is a 77-year-old individual with an AGI of $25,000 in 2014. She began living in a nursing home in 2014 upon the recommendation of her primary care physician in order to receive medical care
In 2015, Miranda records net earnings from self-employment of $146,000. She has no other income. Determine the amount of Miranda’s self-employment tax and her for AGI income tax deduction.
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 $117,000?
Belinda spent the last 60 days of 2015 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
Janet, age 29, is unmarried and is an active participant in a qualified retirement plan. Her modified AGI is $63,000 in 2015.a. Calculate the amount Janet can contribute to a traditional IRA and the
Dana, age 54, has a traditional deductible IRA with an account balance of $107,600, of which $77,300 represents contributions and $30,300 represents earnings. In 2015, she converts her traditional
In 2015, Susan’s sole proprietorship earns $300,000 of self-employment net income (after the deduction for one-half of self-employment tax).a. Calculate the maximum amount Susan can deduct for
Harvey is a self-employed accountant with earned income from the business of $120,000 (after the deduction for one-half of his self-employment tax). He has a profit sharing plan (e.g., defined
In each of the following independent situations, determine the amount of FICA (Social Security and Medicare) the employer should withhold from the employee’s 2015 salary.a. Harry earns a $50,000
In 2015, Maria records self-employed earnings of $135,000. Following the format illustrated in the example in the text, compute Maria’s self-employment tax liability and the allowable income tax
Search the Internet for a U.S. 801(k) plan. Explain what it is.
Sarah was contemplating making a contribution to her traditional IRA in 2014. She determined she would contribute $5,000 in December 2014, but forgot about making the contribution until she was
The following facts pertain to Catch Ewe Later, a sole proprietorship owned by Shepherd:In 20X14 Shepherd gave out 50 livestock vests to prospective clients, at a cost of $10 per vest. What amount of
Claire is a self-employed individual who owns and runs Claire’s Creations LLC. In 20X14 she had $225,000 in net self-employment earnings, including a deduction for 50% of the self-employment tax,
Crimson Corp. was organized as a calendar-year corporation in January 20X14, incurring $51,000 in qualified organizational expenses, and began business in March 20X14. What is the maximum amount
Penguin Corporation (a cash basis, calendar year taxpayer) recorded the following income and expenses in the current year.Penguin purchased seven-year MACRS property in the current year for $80,000;
As of December 31, 20X14, Eliot Corp. has net income per books of $100,000, which includes municipal bond interest of $4,000, a deduction for business meals of $5,000, a deduction for a net capital
As of December 31, 20X15, Hardy Corp. has net income per books of $120,000, which includes straight-line depreciation expense of $5,000. Hardy Corp. claimed accelerated depreciation of $15,000 for
As of December 31, 20X15, Caledonia Corp. has taxable income of $150,000, which includes a $20,000 accelerated depreciation deduction; had straight-line depreciation been used, the deduction would
On March 17, 20X4, Packer became a partner in Cats & Dogs Co., an already formed partnership. Packer does not have property to contribute and thus contributes services in exchange for his 5%
Prairee partnership has four equal partners, Dodd, Crank, Pick, and Mack. Each of the partners had a tax basis of $320,000 as of January 1, 20X5. Prairee’s 20X5 net business income was $152,000.
Prairee partnership has four equal partners, Dodd, Crank, Pick, and Mack. Each of the partners had a tax basis of $320,000 as of January 1, 20X5. Prairee’s 20X5 net business income was $152,000.
Eel Corporation, in Spivey Corners, North Carolina, has filed a Form 1120S for six years, and the local office of the IRS has sent the company a letter requesting an audit next month. Carrie, who is
Use spreadsheet software to graph the growth in the number of S corporation returns filed. Obtain data for these years: 1975, 1980, 1985, 1990, 1995, 2000, and 2005. In a note to your instructor,
Summarize in no more than five slides the purpose and provisions of the S Corporation Modernization Act of 2009.
Lili, Inc., a domestic corporation, operates a branch in France. The earnings record of the branch is as follows.For 2013–2016, Lili, Inc., reports U.S.-source taxable income of $500,000 each
Siga, Inc., a calendar year corporation, records the following gross receipts and taxable income for 2013 through 2015.Siga’s first year of operations was 2013. Is Siga exempt from AMT in 2013,
In January 2014, Iris Corporation purchased and placed in service a 1933 building that houses retail businesses. The cost was $300,000, of which $25,000 applied to the land. In modernizing the
Aqua, Inc., a calendar year corporation, has the following gross receipts and taxable income for 2012 through 2015:Aqua’s first year of operations was 2012.a. When is Aqua first exempt from the AMT
Allie, who was an accounting major in college, is the controller of a mediumsize construction corporation. She prepares the corporate tax return each year. Due to reporting a home construction
Purple Corporation, a calendar year taxpayer, began operations in 2013. It reported the following amounts for its first four tax years. Calculate Purple’s positive and negative ACE adjustments for
Go to the web page for a securities broker or mutual fund. Use a “calculator” provided there to indicate the following. Taxable Interest Rate 5% 5% 8% 8% Your Marginal Tax Rate 35% 15% 28% 33%
Which of the following is excluded from gross income on an individual’s 20X14 tax return?a. January 20X15 rent received in December 20X14b. Value arising from personal use of company vehicle in
Maurice prepares accounts to 5 April each year. The written down value of his main pool at 5 April 2017 was £10,300. There was no special rate pool. His purchases and sales of plant and machinery
Lee begins trading on 1 January 2017 preparing accounts to 31 December each year. His adjusted trading profit for the year to 31 December 2017 (before capital allowances) is £21,000 and capital
Laura started a business on 1 May 2016, preparing accounts to 30 April . Her adjusted trading profit for the year to 30 April 2017 (before deduction of capital allow ances) was£263,150. Her
Joanne started a business on 1 May 2016, preparing accounts to 31 December each year. Her first accounts were for the period to 31 December 2016 . During this period and during the year to 31
Talat owns a large retail business and prepares accounts to 31 December each year. The written down value of his plant and machinery after deducting capital allowances for the year to 31 December
Norma has prepared a set of accounts for the nine -month period to 31 December 2017.The written down value of her plant and machinery at 31 March 2017 was as follows: 178,400 18,200 Main pool Toyota
Patrick prepares accounts to 31 August each year. The written down value of his main pool of plant and machinery after deducting capital allowance s for the year to 31 August 2016 was £1,900. There
Sam began trading on 1 December 2015 and prepared his first accounts for the 17-month period to 30 April 2017. His expenditure on plant and machinery (other than motor cars) in the period was
a) Sharon start ed a business on 1 July 2016. She chose 31 March as her account ing date and her first ac counts covered the period from 1 July 2016 to 31 March 2017.During this period she bought
Raymond started trading on 1 October 2016. He chose 31 March as his accounting dat e and his first accounts were for the period from 1 October 2016 to 31 March 2017 . His purchases and sales of plant
Ian owns a lar ge manufacturing business and prepares accounts to 31 December each year. The written down value of his main pool of plant and machinery after deducting capital allowances for the year
Allan prepares accounts to 5 April each year. His acquisitions and disposals of plant and machinery in the years to 5 April 2017 and 2018 include the following: 8 April 2016 12 May 2016 27 March 2018
Carla incurred a trading loss of £42 ,000 in the year to 30 June 2015 . Her trading profits for the following three years (adjusted for tax purposes) are as follows:Carla's only other income
Anita starts trading on 1 July 2017, preparing accounts to 30 June. Her only acquisitions and disposals of plant and machinery in the first three years of trading are as follows:Her AIA for the year
Jake has been trading for many years, preparing accounts to 30 September each year. The written down value of his plant and machinery at 30 September 2016 was:Jake bought plan t costing £1,150 in
Sally, who has been trading for many years, incurs an adjusted trading loss of £40,000 in the year to 31 December 2017.(a) What is her trading income for 2017-18?(b) If she makes no claim in
Colin's adjusted trading profits/(losses) for the years to 31 August 2016 and 2017 are: year to 31 August 2016 year to 31 August 2017 Before capital allowances (8,900) 20,200 Capital allowances
Ashok has been trading for many years, preparing annual accounts to 31 July. Recent trading profits/(losses), adjusted for tax purposes, are as follows:He has income from property amounting to £
Jane is self-employed. Her recent adjusted trading profits/(losses) are:Jane has other in come of £ 10,000 per annum. Assuming that the trading loss is carried forward and set against future trading
Olive ceases trading on 31 May 2017. Her recent adjusted trading profits/(losses) are: year to 30 June 2013 year to 30 June 2014 year to 30 June 2015 year to 30 June 2016 11 months to 31 May 2017
Marcus begins trading on 1 January 2016 and has the following results:(a) Compute his trading income (before loss relief) for 2015-16 to 2017-18.(b) Identify the claims that could be made in relation
Nathan begins tradi ng on 1 October 2015 , making up accounts to 31 December each year. His first two sets of accounts show the following adjusted trading losses: 2012-13 2013-14 2014-15 2015-16 (to
Carl begins trading on 1 Jul y 2016 and chooses 30 June as his accounting date. His tax - adjusted trading profits/(losses) for the first two accounting years are as follows: year to 30 June 2017
Craig began trading on 1 August 2015 and has the following results: year to 31 July 2016 year to 31 July 2017 Adjusted trading profits/(losses) before capital allowances 5,460 (27,400) Capital
Andrea ceases trading on 31 October 2017 . Her adjusted trading profits/(losses) for the closing periods of account are as follows:Overlap profits of £3,200 arose when Andrea commenced trading.
Brendan ceases trading on 30 September 2017. His recent trading profits/(losses) are:He has no other income. Overlap profits of £4,700 arose when Brendan began trading and no claims are made to set
Hook, Line and Sinker begin trading as a partnership on 1 July 2015 , sharing profits equally. The chosen accounting date is 30 June and the first accounts are made up for the year to 30 June 2016 .
Tom, Dick and Harry begin trading as a partnership on 1 January 2016 , sharing profits in the ratio 3:2:1. With effect from 1 January 2017, they agree that Har ry should receive a salary of £20,000
Nickleby, Copperfield and Drood have traded as equal partners for many years, making up accounts to 31 December each year. As from 1 April 2017 they agree to share profits in the ratio 1:2:2. The
Pickwick, Snodgrass and Tupman are in partnership, making up accounts to 31 March annually. Each partner receives 6% interest on fixed capital. Pickwick and Tupman are entitled to annual salaries of
Red and White begin trading as a partnership on 1 October 2014 , sharing profits equally.On 1 January 2016, they agree to admit Blue as a partner and to share profits in the ratio 3:2:1. The adjusted
(a) Lock, Stock and Barrel are in partnership, making up accounts to 30 June each year.Their profit-sharing agreement specifies that Lock and Barrel should receive annual salaries of £20,000 and
Dodson and Fogg began trading in equal partnership on 1 July 2014. On 1 July 2015 , they admitted Jackson as a partner and agreed to share profits in the ratio 5:4:1. The adjusted trading profits of
Wardle, Jingle and Tro tter began trading on 1 October 2015 , preparing accounts to 30 September each year and sharing profits in the ratio 7:2:1. Results for the first two years of trading are as
Game, Set and Match begin trading in partnership on 1 August 2015 , preparing accounts to 31 January each year and sharing profits equall y. With effect from 1 March 2016 , they agree to share
Cluppins and Raddle form a partnership on 1 November 2013 , preparing accounts to 31 May each year. Bardell is admitted as a partner on 1 January 2015 . Cluppins leaves the partnership on 29 February
Gordon is self -employed and a member of a registered pension scheme. His trading income for tax year 2016-17 is £27,800 but this falls to only £2,500 in 2017-18.(a) How much may Gordon contribute

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