Question: Determine the tax liability, marginal tax rate,

> Henry, who earned $115,920 during 2019, is paid on a monthly basis, is married, and claims four allowances. Use the percentage method table in the Appendix to this chapter. a. What is Henry’s federal tax withholding for each pay period? b. What is Henry’

> For each of the following cases, determine the amount of capital gain or loss to report in each year (after taking into account any applicable carrybacks) and the capital loss carryforward to 2019, if any. Assume that 2013 is the first year of operation

> In 2017, Jerry acquired an interest in a partnership in which he is not a material participant. The partnership was profitable until 2018. Jerry’s basis in the partnership interest at the beginning of 2018 was $55,000. In 2018, his share of the partnersh

> On April 1, 2019, Paul sold a house to Amy. The property tax on the house, which is based on a calendar year, was due September 1, 2019. Amy paid the full amount of property tax of $2,500. Calculate both Paul’s and Amy’s allowable deductions for the prop

> Denise contributes the following assets to a partnership in exchange for a 25% partnership interest: What is Denise’s beginning basis in her partnership interest?

> Jackson invested $190,000 in a passive activity five years ago. On January 1, 2017, his at risk amount in the activity was $45,000. His share of the income and losses in the activity were $52,000 loss in 2017, $20,000 loss in 2018, and $80,000 gain in 20

> Julia acquired passive Activity A in January 2015 and passive Activity B in July 2017. Until 2018 Activity A was profitable. Activity A produced a loss of $150,000 in 2018 and a loss of $150,000 in 2019. She had passive income from Activity B of $50,000

> Carlton holds undeveloped land for investment. His adjusted basis in the land is $200,000, and the FMV is $325,000. On November 1, 2019, he exchanges this land for land owned by his son, who is 31 years old. The appraised value of his son’s land is $320,

> In 2019, Kirsten invested $20,000 for a 10% partnership interest (not a passive activity). The partnership has losses of $150,000 in 2019 and $250,000 in 2020. Kirsten’s share of the partnership’s losses is $15,000 in 2019 and $25,000 in 2020. How much o

> Leslie and Jason, who are married, paid the following expenses during 2019: Interest on a car loan ……………………………………………………………………………… $ 100 Interest on lending institution loan …………………………………………………………………… (used to purchase municipal bonds) …………………………..………………

> Judy acquired passive Activity A in January 2014 and Activity B in July 2015. Until 2019 Activity A was profitable. Activity A produced a loss of $50,000 in 2019 and a loss of $75,000 in 2020. She has $45,000 passive income from Activity B in 2019 and $3

> Dante and Rosa, both under 65 and married, have a combined AGI of $45,000 in year 2019. Due to certain heart issues, Dante has been prescribed Lipitor® by a physician. For year 2019, Dante spent a total of $3,100 on the medication and $1,750 on doctor’s

> Reggie, who is 55, had AGI of $32,000 in 2019. During the year, he paid the following medical expenses: Drugs (prescribed by physicians) ………………………………….…. $ 500 Marijuana (prescribed by physicians) ………………………………. 1,400 Health insurance premiums–after taxes

> Hortencia is employed as an accountant for a large firm in San Diego. For relaxation she likes to go to a nearby casino and play in blackjack tournaments. During 2019, she incurred $6,475 in gambling losses and $5,250 in gambling winnings. Hortencia plan

> During the year 2019, Ricki, who is not self-employed and does not receive employer reimbursement for business expenses, drove her car 5,000 miles to visit clients, 10,000 miles to get to her office, and 500 miles to attend business-related seminars. All

> Reynaldo and Sonya, a married couple, had flood damage in their home due to a dam break near their home in 2019, which was declared a federally designated disaster area. The flood damage ruined the furniture that was stored in their garage. The following

> Mickey is a 12-year-old dialysis patient. Three times a week for the entire year, he and his mother, Sue, drive 20 miles one way to Mickey’s dialysis clinic. On the way home, they go 10 miles out of their way to stop at Mickey’s favorite restaurant. Thei

> In 2019, Andrew contributed equipment with an adjusted basis of $20,000 and an FMV of $18,000 to Construction Limited Partnership (CLP) in return for a 3% limited partnership interest. Andrew’s share of CLP income and losses for the year was as follows:

> Indicate whether each of the following items is considered a for AGI, (above-the line) deduction for the 2019 tax year. a. Student loan interest. b. Gambling losses. c. Early withdrawal penalty. d. Child support payments. e. Charitable contributions. f.

> Explain the business interest expense limitation rules for 2019.

> Under the alimony recapture rules, what amounts are designated for recapture reclassification, and what are the tax consequences for those agreements executed before 2019 and remain unchanged post 2018?

> Under the terms of a divorce decree executed May 1, 2018, Ahmed transferred a house worth $650,000 to his ex-wife, Farah, and was to make alimony payments of $3,000 per month. The property has a tax basis to Ahmed of $300,000. a. How much of this must b

> Chantel has received a 1099-INT from her financial institution showing $75 in box 2 of the form. How should she handle this on her 2019 tax return and why?

> In May 2019, Regina graduated from the Naval Academy with a degree in engineering and was assigned to San Diego as a permanent duty station. In her move to San Diego, Regina incurred the following costs: $450 in gasoline. $250 for renting a truck from UP

> Fabian, a single member of the military, was stationed at White Sands, New Mexico. On July 1, 2019, his army company transferred him to Florida as a permanent duty station. Fabian worked full time for the entire year. During 2019, he incurred and paid th

> Zach attended Champion University during 2014–2018. He lived at home and was claimed by his parents as a dependent during his entire education. He incurred education expenses of $10,000 during college, of which $2,000 was paid for by scholarships. To fin

> In 2019, Joseph and Patricia Jefferson redeemed $8,000 of Series EE U.S. savings bonds (principal of $5,500 and interest of $2,500), the proceeds from which were used to pay for qualified higher education expenses of their dependent daughter who is atten

> On July 1, 2019, Rene, a cash-basis taxpayer, purchased $500,000 of the newly issued bonds of Acce Corporation for $452,260. The 10-year bonds carry an interest rate of 8% and were sold to yield 9.5%. What amount of interest income must Rene report in

> Sean, who is single, received social security benefits of $8,000, dividend income of $13,000, and interest income of $2,000. Except as noted, those income items are reasonably consistent from year to year. At the end of 2019, Sean is considering selling

> Each of the following taxpayers received a state income tax refund in 2019. In all cases, the taxpayer has a filing status of married filing jointly. What amount of the refund is properly included in 2019 income? a. Refund of $729; taxpayer did not itemi

> Which of the following increases a taxpayer’s at-risk amount? a. Cash and the adjusted basis of property contributed to the activity. b. Borrowed amounts used in the activity for which the taxpayer is personally liable. c. Income from the activity. d. A

> Determine the amount of taxable income that should be reported by a cash-basis taxpayer in 2019 in each of the following independent cases: a. A taxpayer completes $500 of accounting services in December 2019 for a client who pays for the accounting work

> In 2014 Marie borrowed $10,000. In 2019, the debt was forgiven. Marie does not believe she should report the forgiveness of debt as income because she received nothing at the time the debt was forgiven in 2019. Do you agree or disagree? Support your posi

> Charles and Joan Thompson file a joint return. In 2018, they had taxable income of $92,370 and paid tax of $12,202. Charles is an advertising executive, and Joan is a college professor. During the fall 2019 semester, Joan is planning to take a leave of a

> Paul has the following information: AGI for 2019 ……………………….……. $155,000 Withholding for 2019 ……………………. 24,000 Total tax for 2018 ……………….………... 29,000 Total tax for 2019 ……………….……….... 28,447 a. How much must Paul pay in estimated taxes to avoid a penalt

> Victoria’s 2019 tax return was due on April 15, 2020, but she did not file it until June 12, 2020. Victoria did not file an extension. The tax due on the tax return when filed was $8,500. In 2019, Victoria paid in $12,000 through withholding. Her 2018 ta

> Using the appropriate tax tables or tax rate schedules, determine the tax liability for tax year 2019 in each of the following instances. In each case, assume the taxpayer can take only the standard deduction. a. A single taxpayer, not head of household,

> Determine the average tax rate and the marginal tax rate for each instance in question 40. a. Average = __________ Marginal = __________ b. Average = __________ Marginal = __________ c. Average = __________ Marginal = __________ d. Average = __________ M

> Determine the amount of the standard deduction for each of the following taxpayers for tax year 2019: a. Christina, who is single. b. Adrian and Carol, who are filing a joint return. Their son is blind. c. Peter and Elizabeth, who are married and file se

> Raphael and Martina are engaged and are planning to travel to Las Vegas during the 2019 Christmas season and get married around the end of the year. In 2019 Raphael expects to earn $45,000 and Martina expects to earn $15,000. Their employers have deducte

> Donald is a 21-year-old full-time college student. During 2019 he earned $2,550 from a part time job and $1,150 in interest income. If Donald is a dependent of his parents, what is his standard deduction amount? If Donald supports himself and is not a de

> On May 5, 2014, Jill purchased equipment for $40,000 to be used in her business. She did not elect to expense the equipment under § 179 or bonus depreciation. On January 1, 2019, she sells the equipment to a scrap metal dealer. What is the cost recovery

> Xavier and his wife Maria have total W-2 income of $93,102. They will file their tax return as married filing jointly. They had a total of $7,910 withheld from their paychecks for federal income tax. Using the tax tables, determine the amount of refund o

> Sheniqua, a single taxpayer, had taxable income of $93,678. Her employer withheld $16,509 in federal income tax from her paychecks throughout the year. Using the tax tables, would Sheniqua receive a refund or would she be required to pay additional tax?

> The W-2 incomes of Betty and her husband Ronald were $43,688 and $41,539, respectively. If Betty and Ronald use a filing status of married filing jointly, determine their tax liability using the tax tables

> The W-2 income of Sandra, a single taxpayer, was $88,793. Using the tax tables, determine Sandra’s tax liability.

> Use the tax rate schedules to determine the tax liability for each of the cases in Problems 43, 44, and 45. a. Liability for 43a = ____________ 43b = ____________ b. Liability for 44a = ____________ 44b = ____________ c. Liability for 45a = ____________

> Determine the tax liability, marginal tax rate, and average tax rate (rounded to two decimal places) in each of the following cases. Use the tax tables to determine tax liability. a. Married taxpayers, taxable income of $38,862: Liability = __________

> Determine the tax liability, marginal tax rate, and average tax rate (rounded to two decimal places) in each of the following cases. Use the tax tables to determine tax liability. a. Married taxpayers, taxable income of $89,889: Liability = ________ Marg

> Havel and Petra are married and will file a joint tax return. Havel has W-2 income of $45,588, and Petra has W-2 income of $47,229. What is their tax liability? Determine their tax liability using both the tax tables and the tax rate schedule.

> Cameron is single and has taxable income of $88,806. Determine his tax liability using the tax tables and using the tax rate schedule. Why is there a difference between the two amounts?

> Cindy Byrd donated stock (capital gain property) to a public charity that she has long sup-ported. She purchased the stock 4 years ago for $100,000, and on the date of the gift, it had a fair market value of $300,000. What is her maximum charitable contr

> What are the five filing statuses that are permitted on a Form 1040?

> Use the information in Problem 51. What education tax credits are available if Walt and Deloris report modified AGI of $119,700? Does your answer change if Tiffany is taking one class a semester (is less than a half-time student) and not taking classes i

> Niles and Marsha adopted an infant boy (a U.S. citizen). They paid $15,500 in 2018 for adoption-related expenses. The adoption was finalized in early 2019. Marsha received $3,000 of employer-provided adoption benefits. For question (a), assume that any a

> In 2019, Jeremy and Celeste, who file a joint return, paid the following amounts for their daughter, Alyssa, to attend the University of Colorado during academic year 2019–2020. Alyssa was in her first year of college and attended full-time. Tuition an

> In 2015 through 2018, Korey, who is single, borrowed a total of $25,000 for higher education expenses on qualified education loans. In 2019, while still living at home and being claimed by his parents as a dependent, he began making payments on the loan.

> When an individual who is single has taxable income of $60,000, the tax rate on qualified dividends is a. 0%. b. 25%. c. 15%. d. 5%. 26. Graciela, who is single, reported itemized deductions of $12,100 on her 2018 tax return. Her itemized deductions inc

> A single taxpayer is 26 years old and has wages of $18,000 and interest income of $450. Which Form 1040 Schedule must the taxpayer use? a. Schedule 1. b. Schedule 2. c. Schedule 3. d. The taxpayer does not need to use a Schedule. 17. Which Schedule must

> Jennifer and Paul, who file a joint return, have taxable income of $82,825 and the following tax liability: Their marginal tax rate is: a. 10%. b. 12%. c. 13% d. 22%. 2. Jennifer and Paul, who file a joint return, have taxable income of $82,825 and the

> Eric exchanged land used in his business with Geoff for another lot of land. Eric exchanged the land with a $75,000 FMV and $45,000 basis along with $15,000 cash. Geoff’s basis in his land is $60,000, and the FMV is $90,000. Which of the following statem

> Allie and Buddy are married, file a joint return, and have one son, Zack, age 5. Buddy has earned income of $47,000, and Allie was a full-time student for eight months (with no income). They paid a qualified child care center $3,450. How much is Allie an

> During 2019, Raul incurred and paid the following expenses: Prescription drugs ……………………………………………………….……… $ 470 Vitamins and over-the-counter cold remedies …………………………… 130 Doctor and dentist visits …………………………………………………………. 700 Health club fee ………………………………

> Jamison is a single dad with two dependent children: Zoey, age 7, and Conner, age 3. He has an AGI of $39,000 and paid $4,300 to a qualified day care center for the two children. What amount can Jamison receive for the child and dependent care credit? a.

> Which of the following increases a taxpayer’s at-risk amount? a. Cash distributions. b. Property distributions. c. Increased share of liabilities. d. Loss items.

> In 2016 Grant purchased land for $103,000 for use in his business. He sold it in 2019 for $114,000. What are the amount and type of gain on this sale before netting any other gains and/or losses? a. $11,000 § 1231 gain. b. $11,000 ordinary gain. c. $11,0

> Chen received a $10,000 dividend from a Subchapter C corporation. He also owns a 50% interest in a Subchapter S corporation that reported $100,000 of taxable income. He received a distribution of $20,000 from the Subchapter S corporation. How much income

> Which of the following statements concerning the shareholders of a Subchapter S corporation is correct? a. Shareholders are taxed on their proportionate share of earnings that are distributed. b. Shareholders are taxed on the distributions from the corp

> Which of the following statements is incorrect? a. An S corporation can own stock of a C corporation. b. A C corporation can own stock of an S corporation. c. An S corporation can be a partner in a partnership. d. An estate can own stock of an S corpora

> Which of the following items increase basis for a stockholder of a Subchapter S corporation? a. Capital contributions. b. Charitable contributions. c. Net losses. d. Distributions from the corporation.

> Concerning the business interest expense deduction, which of the following statements is true? a. Disallowed interest expense can be carried forward indefinitely. b. The interest expense deduction cannot exceed 30% of adjusted taxable income. c. The int

> Banana Company is widely held. It owns 85% of Strawberry Corporation. Two individuals hold the remaining 15%. Which of the following statements is true? a. Banana and Strawberry must file a consolidated tax return. b. Banana and Strawberry can elect to

> Which of the following is a positive adjustment on Schedule M-1? a. Excess of capital losses over capital gains. b. Excess of capital gains over capital losses. c. Charitable contribution carryover to the current year. d. Depreciation for taxes in exces

> Explain the rules associated with the carryback and carryforward of net operating losses created in 2017.

> Which of the following is a negative adjustment on Schedule M-1? a. Federal income tax. b. Charitable contributions in excess of the 10% limit. c. Depreciation for books in excess of depreciation for taxes. d. Tax-exempt interest income.

> Parker Company has earnings and profits of $8,000. It distributes capital gain property with a basis of $2,000 and FMV of $9,000 to Gertrude Parker, its sole shareholder. Gertrude has a basis of $10,000 in her stock. Which of the following statements is

> Which, if any, of the following statements concerning the shareholders of a Subchapter C corporation is correct? a. Shareholders are taxed on their proportionate share of earnings and profits as they are earned. b. Shareholders are taxed on distribution

> A calendar-year corporate taxpayer must make its final estimated tax payment on the 15th of which month? a. November. b. December. c. January. d. February.

> Which of the following statements is false? a. A corporation with average sales in excess of $26,000,000 must use the accrual method of accounting. b. The charitable contributions of a corporation may be limited. c. A corporation may be entitled to a de

> For Subchapter C corporations, which of the following statements is true? a. Capital losses can be carried back three years and then carried forward five years. b. Corporations can elect to forgo the carryback period for capital losses and only carry th

> Mountain Company owns 25% of Valley Company. Both are domestic corporations. Valley pays a $60,000 dividend to Mountain. What amount of dividend income will be included in the taxable income of Mountain Company? a. $15,000. b. $21,000. c. $39,000. d. $6

> Annabelle forms a corporation in which she is the sole shareholder. She transfers $20,000 cash plus land with a $100,000 adjusted basis and a $160,000 FMV in exchange for all the stock of the corporation. The corporation assumes the $140,000 mortgage on

> Svetlana forms a corporation in which she is the sole shareholder. She contributes a vehicle with a basis of $15,000 and an FMV of $8,000 in exchange for stock. She also contributes cash of $2,000. Svetlana will recognize a. A $5,000 loss. b. A $7,000 l

> Tameka and Janelle form a corporation in which each will own 50% of the stock. Tameka contributes $50,000 in cash. Janelle contributes property with a basis of $30,000 and an FMV of $60,000. She receives $10,000 of inventory from the corporation. Which o

> Explain the net operating loss rules for 2018 and later.

> Two individuals form a corporation and own all of its stock. One individual contributes cash, and the other contributes property encumbered by a mortgage. The new corporation assumes the mortgage. Which of the following statements is true with respect to

> A corporation has a fiscal year-end of July. If the corporation does not receive an automatic extension of time to file its return, the return will be due on the 15th of a. December. b. November. c. October. d. September.

> Which of the following statements is correct? a. A calendar-year corporation must file its tax return no later than March 15 unless it requests an extension. b. A corporation is a legal entity that is taxed on its taxable income. c. Corporations choose

> On November 1, Ashton sells her interest in XYZ Partnership to Wayne for $200,000 cash and a release of liability of $30,000. Ashton’s basis at the beginning of the year was $125,000 (including the $30,000 of liability). Ashton’s share of income through

> All of the following statements are correct concerning liquidating distributions of a partnership except: a. A loss can never be recognized. b. A distribution of money in excess of basis causes a gain to be recognized. c. Basis in a property distributio

> Katlin contributes land to a partnership with a basis of $44,000 and an FMV of $56,000 in 2017. In 2019, when the FMV of the land is $58,000, the partnership distributes the land to Baily, another partner. Which of the following is true? a. Katlin recog

> Molly, a 30% partner in XYZ Partnership, has a basis of $55,000 in her partnership interest. She receives a cash distribution of $54,000 at year-end. The distribution has what tax effect on Molly? a. No gain or loss is recognized, and she has a $55,000

> Partner Beth has a basis of $10,000 in a partnership at the beginning of the year. She receives $6,000 in cash distributions, her distributive share of income is $5,000, and she receives a land distribution with a basis of $8,000 (FMV $20,000). What is B

> All of the following items usually affect the basis of a partnership interest except: a. Cash or property contributed. b. Guaranteed payments. c. Partnership income or loss items. d. A partner’s share of recourse liabilities.

> Maggie and Davis are equal partners in a partnership. When forming the partnership, Davis contributed a building with an FMV of $550,000 and a basis of $175,000. During the first year of operations, the partnership earned $170,000 in ordinary income and

> The amount of savings bond interest exempt from tax is limited when an individual is single and his or her AGI reaches a. $121,600. b. $81,100. c. $79,550. d. $96,100.

> The calculation of a partner’s basis in his or her partnership interest is mandatory in which of the following situations? a. In a partnership loss year. b. At the liquidation or disposition of a partner’s interest. c. When the partner receives non liqu

> Retish is a 10% partner in a partnership. The partnership pays Retish a guaranteed payment of $45,000 per year. If the partnership’s ordinary income is $38,000 before considering the guaranteed payment, the partnership will report ordinary income of how

> A partner’s share of ordinary income or loss and separately stated items is reported to the partner via what form? a. Form 1065. b. Form 1040, Schedule SE. c. Form 1065, Schedule K-1. d. Form 1065, Schedule D.

> Which of the following items from a partnership go into the calculation of a partner’s self- employment income? a. Rental income. b. Dividend income. c. Interest income. d. § 179 expense.