Comprehensive Problem (40 points)

P. McGraw is a doctor who practices internal medicine. He uses the cash method of accounting. He had the $180,600 in revenues and had the following operating expenses:

Rent expense	12,000
Utilities expense	5,150
Salary to associate physician	60,000
Salary to secretary	20,000
Depreciation expense	3,600
Business meals	8,500

Due to irreconcilable differences McGraw and his wife were divorced on May 15, 2021. The divorce decree granted custody of their four year old son to his former wife. Additionally, the divorce decree provided that McGraw pay his former wife $1,250 a month beginning July 1 2021. This amount will be reduced to $750 once their son reaches the age of 21.

McGraw received corporate dividend of $12,150 and state bond interest of $11,105. He made a contribution to his SEP retirement account in the amount of $16,000 and had the following personal expenses:

Mortgage interest	10,170
Estimated state income tax payments	4,500
Estimated federal income tax payments	20,000
Gifts to charitable organization	1,510
Gift to needy family	500
Gift to needy girlfriend	340

Requirements (show computations and provide explanations)

1. Determine the appropriate depreciation expense allowed for tax purposes for 2021 ignoring Section 179 and bonus depreciation.
2. Determine the net business income from P. McGraw's medical practice for 2021. Explain any limitations or disallowed items.
3. Determine the adjusted gross income for P. McGraw for 2021. Explain any limitations or disallowed items.
4. Determine P. McGraw's taxable income for 2021.
5. Determine P. McGraw's total tax liability, including self-employment tax.
6. Determine P. McGraw's refund or tax due for 2021

Following are relevant tables.

For 2021, the standard deduction for single is $12,550 and the standard deduction for married filing jointly is $25,100.

2021 Tax Rate Schedules

Single

If taxable income is:

of the

But not amount

Over over The tax is over

$0 $9,950 0 + 10% $0

9,950 40,575 $995.00 + 12% 9,950

40,575 86,375 4,664.00 + 22% 40,575

86,375 164,925 14,751.00 + 24% 86,375

164,925 209,425 33,693.00 + 32% 164,925

209,425 523,600 47,843.00 + 35% 209,425

523,600 157,804.25 + 37% 523,600

Married filing jointly

If taxable income is:

of the

But not amount

Over over The tax is over

$0 $19,900 0 + 10% $0

19,900 81,050 $1,990.00 + 12% 19,900

81,050 172,750 9,328.00 + 22% 81,050

172,750 329,850 29,502.00 + 24% 172,750

329,850 418,550 67,206.00 + 32% 329,850

418,550 628,300 95,686.00 + 35% 418,850

628,300 168,993.50 + 37% 628,300