1. 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) over the past six years. The current balance in her Roth 401(k) account is $50,000 and the balance in her traditional 401(k) is $40,000. Kathleen needs cash because she is taking a month of vacation to travel the world. Answer the following questions relating to distributions from Kathleen’s retirement accounts assuming her marginal tax rate for ordinary income is 24%. a. If Kathleen receives a $10,000 distribution from her traditional 401(k) account, how much will she be able to keep after paying taxes and penalties, if any, on the distribution? b. If Kathleen receives a $10,000 distribution from her Roth 401(k) account, how much will she be able to keep after paying taxes and penalties, if any, on the distribution? c. If Kathleen retires from MH and then she receives a $10,000 distribution from her traditional 401(k), how much will she be able to keep after paying taxes and penalties, if any, on the distribution? d. If Kathleen retires from MH and then she receives a $10,000 distribution from her Roth 401(k), how much will she be able to keep after paying taxes and penalties, if any, on the distribution? e. Assume the original facts except that Kathleen is 60 years of age, not 56. If Kathleen receives a $10,000 distribution from her Roth 401(k) (without retiring), how much will she be able to keep after paying taxes and penalties, if any, on the distribution?
> What is the limitation on a deductible IRA contribution for 2018?
> Why might a corporation issue a stock distribution to its shareholders?
> Briefly describe the process of computing a corporation’s minimum tax credit carryover.
> ELS, an S corporation, reported a business loss of $1,000,000. Ethan, ELS’s sole shareholder, is involved in ELS’s daily business activities and he reports $1,200,000 of taxable income from sources other than ELS. What must you know in order to determine
> 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 differ from AGI and how does it differ from MAGI for purp
> In its first year of existence, SMS, an S corporation, reported a business loss of $10,000. Michelle, SMS’s sole shareholder, reports $50,000 of taxable income from sources other than SMS. What must you know in order to determine whether she can deduct t
> How does the double taxation of corporate distributions affect whether an individual chooses to operate a business as a C corporation or as flow-through entity?
> Would a corporation with a small amount of current year taxable income (before the net operating loss deduction) and a large net operating loss carryover have a tax liability for the current year? Explain.
> What is the due date for a calendar year corporation tax return Form 1120 for 2018? Is it possible to extend the due date? Explain.
> For tax purposes, how is the compensation paid to an S corporation shareholder similar to compensation paid to an owner of an entity taxed as a partnership? How is it different?
> Why might it be a good tax planning strategy for an S corporation with one shareholder to pay a salary to the shareholder on the low end of what the services are potentially worth?
> Are taxpayers allowed to claim depreciation on assets they use for both business and personal purposes? What are the tax consequences if the business use drops from above 50 percent in one year to below 50 percent in the next?
> Describe the like-kind property requirements for real property for purposes of qualifying for a like-kind exchange. Explain whether land held for investment by a corporation will qualify as like-kind property with land held by an individual for personal
> Why might a business elect to claim a reduced §179 expense amount in the current year rather than claiming the maximum amount?
> What are the carryback and carryover periods for a net operating loss? Does it depend on the size of the corporation? Explain.
> Which of the following items is not a permanent book-tax difference? a. Tax-exempt interest income. b. Tax-exempt insurance proceeds. c. Domestic production activities deduction. d. Meal expenses. e. First-year expensing under §179.
> Lewis and Laurie are married and jointly own a home valued at $240,000. They recently paid off the mortgage on their home. The couple borrowed money from the local credit union in January of 2018. How much interest may the couple deduct in each of the fo
> Stephen transferred $17,500 to an irrevocable trust for Graham. The trustee has the discretion to distribute income or corpus for Graham’s benefit, but is required to distribute all assets to Graham (or his estate) not later than Graham’s 21st birthday.
> Cedar Corporation reported a net operating loss in 2018 of $25,000,000. In 2019, Cedar reported taxable income before any NOL carryovers of $20,000,000. What is Cedar’s taxable income in 2019 and any NOL carryover to 2020?
> MWC Corp. is currently in the sixth year of its existence (2018). In 2013– 2017, it reported the following income and (losses) (before net operating loss carryovers or carrybacks). 2013: ……………………………($ 70,000) 2014: ……………………………($ 30,000) 2015: …………………………
> Cuyahoga County, Ohio has a sales tax rate of 8.0 percent. Determine the state, local, and transit (a local transportation district) portions of the rate. You can find resources on the State of Ohio website, including the following link: http://www.ta
> Under what circumstances must a corporate shareholder recognize gains in a complete liquidation?
> How do self-employed taxpayers report home office deductions on their tax returns?
> Do all shareholders receive the same tax treatment in a complete liquidation of a corporation? Explain.
> Are companies allowed to decide who can and cannot participate in nonqualified deferred compensation plans? Briefly explain.
> Describe how goodwill amortized for tax purposes but not for book purposes (i.e., no impairment) leads to temporary book-tax differences.
> Explain why the tax law imposes constructive stock ownership rules on stock redemptions.
> Harold owns a condo in Hawaii that he plans on using for the rest of his life. However, to ensure his sister Maude will own the property after his death, Harold deeded the remainder of the property to her. He signed the deed transferring the remainder in
> Assuming adequate amounts of corporate E&P, what is the formula for determining the amount of a noncash distribution a shareholder must include in gross income?
> Seven years ago, Halle (currently age 41) contributed $4,000 to a Roth IRA account. The current value of the Roth IRA is $9,000. In the current, year Halle withdraws $8,000 of the account balance to use as a down payment on her first home. Assuming Halle
> Paris participates in her employer’s nonqualified 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 marginal income tax rate is 32 percent, how much does de
> Euro Corporation, a U.S. corporation, operates through a branch in Germany. During 2018 the branch reported taxable income of $1,000,000 and paid German income taxes of $300,000. In addition, Euro received $50,000 of dividends from its 5% investment in t
> Marissa participates in her employer’s nonqualified 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 marginal income tax rate is 32 percent, how much tax d
> Longhaul Real Estate exchanged a parcel of land it held for sale in Bryan, Texas for a warehouse in College Station, Texas. Will the exchange qualify for like-kind treatment?
> Emily purchased a building to store inventory for her business. The purchase price was $760,000. Emily also paid legal fees of $300 to acquire the building. In March, Emily incurred $2,000 to repair minor leaks in the roof (from storm damage earlier in t
> Franco converted a building from personal to business use in May 2016 when the fair market value was $55,000. He purchased the building in July 2013 for $80,000. On December 15 of this year, Franco sells the building for $40,000. On the date of the sale,
> Are real property taxes subject to any deduction limitations? Explain.
> Can C corporations use the cash method of accounting? Explain.
> On January 1, year 1, Tyra works for Hatch Corporation. New employees must choose immediately between receiving seven NQOs (each NQO provides the right to purchase for $5 per share 10 shares of Hatch stock) or 50 restricted shares. Hatch’s stock price is
> LNS corporation reports book income of $2,000,000. Included in the $2,000,000 is $15,000 of tax-exempt interest income. NS reports $1,345,000 in ordinary and necessary business expenses. What is LNS corporation’s taxable income for the year?
> 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, Jessica made the 83(b) election. Jessica’s restricted shar
> 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 the §3(b) election. Dave’s restricted shares will vest a
> 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 end of year 2. He intends to hold the shares until the end
> 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 nonqualified options (NQOs) or ISOs to its employees. Ini
> 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 price was $3 per share at the time. Now that 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 Hendricks Corporation stock for $5 per share). Now that Hendri
> 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 its stock price was $7 per share. Now that Barlow’s sh
> Yost received 300 NQOs (each option gives Yost the right to purchase 10 shares of Cutter Corporation stock for $15 per share) at the time he started working for Cutter Corporation three years ago. Cutter’s stock price was $15 per share. Yost exercises al
> Discuss how the property limitation restricts large businesses from taking the §179 expense.
> 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 contributions) in the account until she retires in 25 years, w
> 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 contributes. The maximum employer contribution under th
> 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 in his company’s 401(k) plan. Under the money purchase p
> 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 in his defined contribution plan is $2,000,000 at the
> Reggie is a self-employed taxpayer who turns 59 years old at the end of the year (2018). In 2018, his net Schedule C income was $300,000. This was his only source of income. This year, Reggie is considering setting up a retirement plan. What is the maxim
> Rita is a self-employed taxpayer who turns 39 years old at the end of the year (2018). During 2018, her net Schedule C income was $300,000. This was her only source of income. This year, Rita is considering setting up a retirement plan. What is the maxim
> Hope is a self-employed taxpayer who turns 54 years old at the end of the year (2018). In 2018, her net Schedule C income was $130,000. This was her only source of income. This year, Hope is considering setting up a retirement plan. What is the maximum a
> Elvira is a self-employed taxpayer who turns 42 years old at the end of the year (2018). In 2018, her net Schedule C income was $130,000. This was her only source of income. This year, Elvira is considering setting up a retirement plan. What is the maxim
> Sarah was contemplating making a contribution to her traditional individual retirement account for 2018. She determined that she would contribute $5,500 to her IRA and she deducted $5,500 for the contribution when she completed and filed her 2018 tax ret
> A taxpayer sells a piece of real property in year 1. The amount of year 1 real property taxes is estimated at the closing of the sale and the amounts are allocated between the buyer and the taxpayer. At the end of year 1, the buyer receives a property ta
> 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 salary of her three highest years of compensation from JMM
> Tater Meer purchased a new car for use in her business during 2018 for $75,000. The auto was the only business asset she purchased during the year and her business was very profitable. Calculate Tater’s maximum depreciation deductions for the automobile
> Lina purchased a new car for use in her business during 2018. The auto was the only business asset she purchased during the year and her business was extremely profitable. Calculate her maximum depreciation deductions (including §179 expense unless state
> Assume that Ernesto purchased a digital camera on July 10 of year 1 for $3,000. In year 1, 80 percent of his camera usage was for his business and 20 percent was for his personal photography activities. This was the only asset he placed in service during
> Hans runs a sole proprietorship. Hans has reported the following net §1231 gains and losses since he began business. Net §1231 gains shown are before the lookback rule. Year Net §1231 Gains/(Losses) Year 1 ($65,000) Year 2 15,000 Year 3 0
> Acorn Construction (calendar-year end C-corporation) has had rapid expansion during the last half of the current year due to the housing market’s recovery. The company has record income and would like to maximize its cost recovery deduction for the curre
> Assume that Sivart Corporation has 2018 taxable income of $1,750,000 for purposes of computing the §179 expense and acquired several assets during the year. The delivery truck was acquired in a nontaxable transaction. Asset Placed in Service Basis
> Woolard Supplies (a sole proprietorship) has taxable income in 2018 of $240,000 before any depreciation deductions (§179, bonus, or MACRS) and placed some office furniture into service during the year. The furniture had been used previously by Liz Woolar
> Chaz Corporation has taxable income in 2018 of $312,000 for purposes of computing the §179 expense and acquired the following assets during the year: Asset Placed in Service Basis Office furniture September 12 $780,000 Computer equipment F
> Assume that ACW Corporation has 2018 taxable income of $1,000,000 for purposes of computing the §179 expense. The company acquired the following assets during 2018: Asset Placed in Service Basis Machinery September 12 $470,000 Computer equi
> Consider the settlement statement in Appendix A to this chapter. What amounts on the statement are the Jeffersons allowed to deduct on their 2018 tax return? Indicate the settlement statement line number for each deductible amount (discuss any issues tha
> Dain’s Diamond Bit Drilling purchased the following assets this year. Assume its taxable income was $53,000 for purposes of computing the §179 expense (assume no bonus depreciation). Asset Purchase Date Original Basis Drill Bits (5-year) January
> Assume Timberline Corporation’s 2018 taxable income of $240,000 for purposes of computing the §179 expense. It acquired the following assets in 2018: Purchase Date Basis Furniture (7-year) December 1 $450,000 Computer Equipment (5-year) Fe
> Assume TDW Corporation’s (calendar year end) has 2018 taxable income of $650,000 for purposes of computing the §179 expense. The company acquired the following assets during 2018: Asset Placed in Service Basis Machinery September 12 $2,270,000
> 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: Asset Placed in Service Basis Machinery September 12 $1,550,000 Compu
> 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 month. a. If LaMont receives one pass (worth $265) each m
> Tonya Jefferson (single), a sole proprietor, runs a successful lobbying business in Washington, D.C. She doesn’t sell many business assets, but she is planning on retiring and selling her historic townhouse, from which she runs her business, to buy a pla
> On November 10 of year 1 Javier purchased a building, including the land it was on, to assemble his new equipment. The total cost of the purchase was $1,200,000; $300,000 was allocated to the basis of the land and the remaining $900,000 was allocated to
> 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 deduction (ignore §179 expense and bonus depreciation for
> Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. In 2018, she sells the following long-term assets used in her business: Sales Price Cost Accumulated Depreciation Building $ 230,000 $200,000 $52,000 Equipment 8
> At the beginning of the year, Dee began a calendar-year business and placed in service the following assets during the year: Asset Date Acquired Cost Basis Computer equipment 3/23 $5,000 Furniture 5/12 $7,000 Pickup truck 9/15 $10,000
> What is the qualified business income deduction and how does it affect the tax rate on flow-through entity income?
> Buckley, an individual, began a business two years ago and has never sold a §1231 asset. Buckley owned each of the assets since he began the business. In the current year, Buckley sold the following business assets: Asset Original Cost Accumulated De
> At the beginning of the year, Poplock began a calendar-year dog boarding business called Griff’s Palace. Poplock bought and placed in service the following assets during the year: Asset Date Acquired Cost Basis Computer equipment 3/23 $5,000
> Hart, an individual, bought an asset for $500,000 and has claimed $100,000 of depreciation deductions against the asset. Hart has a marginal tax rate of 32 percent. Answer the questions presented in the following alternative scenarios (assume Hart had no
> Troy (single) purchased a home in Hopkinton, Massachusetts, on January 1, 2007 for $300,000. He sold the home on January 1, 2018 for $320,000. How much gain must Troy recognize on his home sale in each of the following alternative situations? a. Troy ren
> Sarah (single) purchased a home on January 1, 2008 for $600,000. She eventually sold the home for $800,000. What amount of the $200,000 gain on the sale does Sarah recognize in each of the following alternative situations? (Assume accumulated depreciatio
> Brittany started a law practice as a sole proprietor. She owned a computer, printer, desk, and file cabinet she purchased during law school (several years ago) that she is planning to use in her business. What is the depreciable basis that Brittany shoul
> 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 Supply. Her friend, knowing of her interest in sports cars,
> Lars Osberg, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lars $8,500 to purchase if he pays for it himself through the health exchange (Lars’s AGI is too high to receive any tax deducti
> Harold and Maude are married and live in a common law state. Neither has made any taxable gifts and Maude owns (holds title) all their property. She dies with a taxable estate of $25 million and leaves it all to Harold. He dies several years later, leavi
> Roberta is considering making annual gifts of $15,000 of stock each to each of her four children. She expects to live another five years and to leave a taxable estate worth approximately $18 million. She requests you justify the gifts by estimating her e
> For flow-through entities with individual owners, how many times is flow-through entity income taxed, who pays the tax, and what is the tax rate?
> Roland had a taxable estate of $15.5 million when he died this year. Calculate the amount of estate tax due (if any) under the following alternatives. a. Roland’s prior taxable gifts consist of a taxable gift of $1 million in 2005. b. Roland’s prior taxa
> Eagle Inc., a U.S. corporation intends to create a limitada (limited liability company) in Brazil in 2018 to manufacture pitching machines. The company expects the operation to generate losses of US$2,500,000 during its first three years of operations. E
> Chapeau Company, a U.S. corporation, operates through a branch in Champagnia. The source rules used by Champagnia are identical to those used by the United States. For 2018, Chapeau has $2,000 of gross income, $1,200 from U.S. sources and $800 from sourc
> Carmen SanDiego, a U.S. citizen, is employed by General Motors Corporation, a U.S. corporation. On April 1, 2018, GM relocated Carmen to its Brazilian operations for the remainder of 2018. Carmen was paid a salary of $120,000 and was employed on a 5-day
> Mackinac Corporation, a U.S. corporation, reported total taxable income of $5 million. Taxable income included $1.5 million of foreign source taxable income from the company’s branch operations in Canada. All of the branch income is foreign branch income
> Use the facts in problem 37. If Guido meets the statutory requirements to be considered a resident of both the United States and Belgium, what criteria does the U.S.-Belgium treaty use to “break the tie” and determine Guido’s country of residence? Look a
> Guido is a citizen and resident of Belgium. He has a full-time job in Belgium and has lived there with his family for the past 10 years. In 2016, Guido came to the United States for the first time. The sole purpose of his trip was business. He intended t
> Use California Publication 1061 (2016) to determine the various tests California uses to determine whether two or more entities are part of a unitary group.
