Doug Jones submitted his 2018 tax return on time and elected to file a joint tax return with his wife, Darlene. Doug and Darlene did not request an extension for their 2018 tax return. Doug and Darlene owed and paid the IRS $124,000 for their 2018 tax year. Two years later, Doug amended his return and claimed married filing separate status. By changing his filing status, Doug sought a refund for an overpayment for the tax year 2018 (he paid more tax in the original joint return than he owed on a separate return). Is Doug allowed to change his filing status for the 2018 tax year and receive a tax refund with his amended return?
> Simpson, age 45, is a single individual who is employed full-time by Duff Corporation. This year Simpson reports AGI of $50,000 and has incurred the following medical expenses: a. Calculate the amount of medical expenses that will be included with Simp
> In each of the following independent cases, indicate the amount (1) deductible for AGI, (2) deductible from AGI, and (3) neither deductible for nor deductible from AGI before considering income limitations or the standard deduction. a. Ted paid $50 rent
> 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 year Jack has also paid moving expenses of $4,300 and
> Betty operates a beauty salon as a sole proprietorship. Betty also owns and rents an apartment building. This year Betty had the following income and expenses. Determine Betty’s AGI and complete page 1 of Form 1040 for Betty. You may as
> Explain how cost of goods sold is treated when a business sells inventory.
> Aishwarya’s husband passed away in 2017. She needs to determine whether Jasmine, her 17-year-old stepdaughter who is single, qualifies as her dependent in 2018. Jasmine is a resident but not a citizen of the United States. She lived in Aishwarya’s home f
> Rank the following three single taxpayers in order of the magnitude of taxable income (from lowest to highest) and explain your results.
> All else being equal, would a taxpayer with passive losses prefer to have wage income or passive income?
> Jack operates a plumbing business as a sole proprietorship and uses the cash method. Besides providing plumbing services, Jack also sells plumbing supplies to homeowners and other plumbers. The sales of plumbing supplies constitute less than $20,000 per
> Discuss the treatment of suspended passive losses upon the sale of a passive activity?
> David and Lilly Fernandez have determined their tax liability on their joint tax return to be $1,700. They have made prepayments of $1,500 and also have a child tax credit of $2,000. What is the amount of their tax refund or taxes due?
> Jeremy earned $100,000 in salary and $6,000 in interest income during the year. Jeremy’s employer withheld $11,200 of federal income taxes from Jeremy’s paychecks during the year. Jeremy has one qualifying dependent child who lives with him. Jeremey qua
> Don Juan, a single taxpayer, is the sole owner, of DJ’s Inc., an S Corporation. This year, DJ’s Inc. incurred a massive $600,000 business loss, all of which is allocable to Don Juan as the sole shareholder. Assume that $600,000 loss is not limited by the
> Under what circumstances would business income from an accounting practice qualify for the deduction for qualified business income?
> Clem and Ida have been married for several years, but in 2018 they finalized their divorce. In the divorce decree, Clem agreed to deed his car to Ida and pay Ida $10,000 per year for four years (but not beyond her death). Will either of these transfers q
> Whether a business expense is “reasonable in amount” is often a difficult question. Explain why determining reasonableness is difficult and describe a circumstance where reasonableness is likely to be questioned by the IRS.
> Describe what is meant by qualified business income for purposes of the deduction for qualified business income.
> How do two taxpayers determine who has priority to claim a person as a dependent if the person is a qualifying child of both taxpayers when neither taxpayer is a parent of the child (assume the child does not qualify as a qualifying child for either pare
> Compare and contrast the different year-ends available to sole proprietorships, flow-through entities, and C corporations.
> What are some of the common examples of the conversion strategy?
> If a person meets the qualifying relative tests for a taxpayer, is that person automatically considered to be a dependent of the taxpayer?
> Benjamin, a self-employed bookkeeper, takes a CPA review course ($1,500 cost) to help prepare for the CPA exam. a. Use an available tax research service to determine if Benjamin may deduct the cost of the CPA exam course. b. Write a memo communicating th
> Using an available tax service or the Internet, identify three basic tax planning ideas or tax tips suggested for year-end tax planning. Which basic tax strategy from this chapter does each planning idea employ?
> Christopher is a cash-method, calendar-year taxpayer, and he made the following cash payments related to his business this year. Calculate the after-tax cost of each payment assuming Christopher has a 37 percent marginal tax rate. a) $500 fine for speed
> Tammy teaches elementary school history for the Metro School District. In 2018 she has incurred the following expenses associated with her job: Noncredit correspondence course on history ………………….$ 900 Teaching cases for classroom use…………………………………….1,800
> What is the kiddie tax? Explain.
> Simon lost $5,000 gambling this year on a trip to Las Vegas. In addition, he paid $2,000 to his broker for managing his $200,000 portfolio, and $1,500 to his accountant for preparing his tax return. In addition, Simon incurred $2,500 in transportation co
> Michelle operates a food truck. Indicate the amount (if any) that she can deduct as an ordinary and necessary business deductions in each of the following situations and explain your solution. a) Michelle moves her food truck between various locations o
> 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 year Kate reinvested her after-tax dividends in the same
> What is the general rule for how many authorities a research memo should discuss?
> Penny, a full-time biochemist, loves stock car racing. To feed her passion, she bought a used dirt-track car and has started entering some local dirt-track races. The prize money is pretty small ($1,000 for the winner), but she really is not in it for th
> Nola, a tax novice, has a fairly simple tax question. Besides tax services, what are some sources that she can use to answer her question?
> Nitai who is single and has no dependents, was planning on spending the weekend repairing his car. On Friday, Nitai’s employer called and offered him $500 in overtime pay if he would agree to work over the weekend. Nitai could get his car repaired over t
> Through November, Cameron has received gross income of $120,000. For December, Cameron is considering whether to accept one more work engagement for the year. Engagement 1 will generate $7,000 of revenue at a cost to Cameron of $3,000, which is deductibl
> Rick, who is single, has been offered a position as a city landscape consultant. The position pays $125,000 in cash wages. Assume Rick has no dependents. Rick deducts the standard deduction instead of itemized deductions a. What is the amount of Rick’s a
> In 2018, Lisa and Fred, a married couple, have taxable income of $300,000. If they were to file separate tax returns, Lisa would have reported taxable income of $125,000 and Fred would have reported taxable income of $175,000. What is the couple’s marria
> Jake is a retired jockey who takes monthly trips to Las Vegas to gamble on horse races. Jake also trains race horses part time at his Louisville ranch. So far this year, Jake has won almost $47,500 during his trips to Las Vegas while spending $27,250 on
> Whitney received $75,000 of taxable income in 2018. All of the income was salary from her employer. What is her income tax liability in each of the following alternative situations? a. She files under the single filing status. b. She files a joint tax re
> Anwer owns a rental home and is involved in maintaining it and approving renters. During the year he has a net loss of $8,000 from renting the home. His other sources of income during the year are a salary of $111,000 and $34,000 of long-term capital gai
> 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 inherited from Grandma on July 23, 2016. The fair marke
> During the current year, Ron and Anne sold the following assets: Capital Asset Market Value Tax Basis Holding Period L stock $50,000 $41,000 > 1 year M stock 28,000 39,000 > 1 year N stock 30,000 22,000 < 1 year O sto
> George bought the following amounts of Stock A over the years: Date Purchased Number of Shares Adjusted Basis Stock A 11/21/1992 1,000 $24,000 Stock A 3/18/1998 500 9,000 Stock A 5/22/2007 750 27,000 On October 12, 2018, he sol
> Alan inherited $100,000 with the stipulation that he “invest it to financially benefit his family.” Alan and Alice decided they would invest the inheritance to help them accomplish two financial goals: purchasing a Park City vacation home and saving for
> In addition to cash contributions to charity, Dean decided to donate shares of stock and a portrait painted during the earlier part of the last century. Dean purchased the stock and portrait many years ago as investments. Dean reported the following reci
> 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, which bond should he choose? Which bond should he choose
> Ray Ray made the following contributions this year. Determine the maximum amount of charitable deduction for each of these contributions ignoring the AGI ceiling on charitable contributions and assuming that the American Heart Association plans to sell
> This year, Major Healy paid $40,000 of interest on a mortgage on his home (Major Healy borrowed $800,000 to buy the residence in 2015; $900,000 original purchase price and value at purchase), $6,000 of interest on a $120,000 home equity loan on his home
> Describe the computation of the limit placed on the business interest deduction. Is the disallowed interest ever deductible?
> Lanny and Shirley divorced in 2018 and do not live together. Shirley has custody of their child, Art, and Lanny pays Shirley $22,000 per year. All property was divided equally. a. How much should Shirley include in income if Lanny’s payments are made in
> Orie and Jane, husband and wife, operate a sole proprietorship. They expect their taxable income next year to be $450,000, of which $250,000 is attributed to the sole proprietorship. Orie and Jane are contemplating incorporating their sole proprietorship
> Louis files as a single taxpayer. In April of this year he received a $900 refund of state income taxes that he paid last year. How much of the refund, if any, must Louis include in gross income under the following independent scenarios? Assume the stand
> Using the facts from the previous problem, how would your answer change if Manny’s after-tax rate of return were 8 percent? Data from Problem 41: Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late D
> Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $20,000 bill from her accountant for consulting services related to her small business. Reese can pay the $20,000 bill any ti
> This year Amber purchased a factory to process and package landscape mulch. Approximately 20 percent of management time, space, and expenses are spent on this manufacturing process. a) At the end of the year, Amber’s accountant indica
> Nicole’s business uses the accrual method of accounting and accounts for inventory with specific identification. In year 0, Nicole received a $4,500 payment with an order for inventory to be delivered to the client early next year. Nicole has the invento
> Renee operates a proprietorship selling collectibles over the web, and last year she purchased a building for $24 million for her business. This year, Renee’s proprietorship reported revenue of $85 million and incurred total expenses of $78.1 million. He
> 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 a 37 percent marginal tax rate. a) $2,000 payment for
> If taxpayers are not allowed to claim deductions for dependency exemptions, is it necessary to determine who qualifies as a taxpayer’s dependents? Briefly explain.
> 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 clients and an additional $5,700 paid when Heather held business meetings with clients in the clubhouse conference
> Ralph operates a business that acts as a sales representative for a large firm that produces and sells precious metals to electronic manufacturers. Ralph contacts manufacturers and convinces them to sign contracts for delivery of metals. Ralph earns a co
> Indicate the amount (if any) that Josh can deduct as an ordinary and necessary business deduction in each of the following situations and explain your solution. a) Josh borrowed $50,000 from the First State Bank using his business assets as collateral.
> For the following taxpayers determine if they are required to file a tax return in 2018. a. Ricko, single taxpayer, with gross income of $15,000. b. Fantasia, head of household, with gross income of $17,500. c. Ken and Barbie, married taxpayers with no
> In 2018, Amanda and Jaxon Stuart have a daughter who is one year old. The Stuarts are full-time students and they are both 23 years old. Their only sources of income are gains from stock they held for three years before selling and wages from part-time j
> In 2018, Laureen is currently single. She paid $2,800 of qualified tuition and related expenses for each of her twin daughters Sheri and Meri to attend State University as freshmen ($2,800 each for a total of $5,600). Sheri and Meri qualify as Laureen’s
> In 2018, Elaine paid $2,800 of tuition and $600 for books for her dependent son to attend State University this past fall as a freshman. Elaine files a joint return with her husband. What is the maximum American opportunity credit Elaine can claim for th
> Julie paid a day care center to watch her two-year-old son this year while she worked as a computer programmer for a local start-up company. What amount of child and dependent care credit can Julie claim in each of the following alternative scenarios? a.
> 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 the following alternative situations? a. His AGI is $100
> Eva received $60,000 in compensation payments from JAZZ Corp. during 2018. Eva incurred $5,000 in business expenses relating to her work for JAZZ, Corp. JAZZ did not reimburse Eva for any of these expenses. Eva is single and she deducts a standard deduct
> Why are some deductions called “above the line” deductions and others called “below the line” deductions? What is the “line”?
> Are taxpayers required to include all realized income in gross income? Explain.
> Assume Norway and Sweden trade with each other, with Norway exporting fish to Sweden, and Sweden exporting Volvos (automobiles) to Norway. Illustrate the gains from trade between the two countries using the standard trade model, assuming first that taste
> The Internet has allowed for increased trade in services such as programming and technical support, a development that has lowered the prices of such services relative to those of manufactured goods. India in particular has been recently viewed as an “ex
> Suppose that Home has 2,400 workers, but they are only half as productive in both industries as we have been assuming. Construct the world relative supply curve and determine the equilibrium relative price. How do the gains from trade compare with those
> Our usual models of trade assume that jobs lost in one industry will be offset by jobs gained in other industries. The Autor et al. paper argued, however, that communities that lose manufacturing jobs to imports end up losing other jobs as well. Is this
> Many countries have value-added taxes—taxes that are paid by producers, but are intended to fall on consumers. (They’re basically just an indirect way of imposing sales taxes.) Such value-added taxes are always accompanied by an equal tax on imports; suc
> Modern communications technology is making it possible to perform many services—e.g., reading X-rays or even doing legal research—from remote locations. How does this affect the potential gains from trade?
> France, in addition to its occasional stabs at strategic trade policy, pursues an active nationalist cultural policy that promotes French art, music, fashion, cuisine, and so on. This may be primarily a matter of attempting to preserve a national identit
> What is the main critique against the WTO with respect to environmental protection? How does the WTO justify its position on trade disputes that involve environmental issues?
> Some retailers in advanced countries sell products from developing countries with low wages but assure customers that these goods are produced under tolerable working conditions. Is demanding that kind of guarantee the same thing as putting a tariff on l
> What are the key assumptions that allow strategic trade policy to work in the Brander-Spencer example of Airbus and Boeing?
> If the United States had its way, it would demand that Japan spend more money on basic research in science and less on applied research into industrial applications. Explain why in terms of the analysis of appropriability.
> It’s widely believed that self-driving vehicles will become commonplace in the fairly new future and that their growth will be fast for years to come. Doesn’t this mean that the United States should have policies designed to ensure that we are a leader i
> What are the disadvantages of engaging in strategic trade policy even in cases in which it can be shown to yield an increase in a country’s welfare?
> What were some of the reasons for the decline in the import-substituting industrialization strategy in favor of a strategy that promotes open trade?
> Brazil and Mexico have both liberalized trade since the 1980s. However, Mexican trade liberalization has gone much further; Brazil is still a fairly inward-looking economy. What might account for this difference in paths?
> A country currently imports automobiles at $8,000 each. Its government believes that, given time, domestic producers could manufacture autos for only $6,000 but that there would be an initial shakedown period during which autos would cost $10,000 to prod
> The overall cost of living is a lot less in China than it is in the United States or Europe. Why might this be? (Think about your answer to problem 7.) Data from Problem 7: Despite major gains, Chinese manufacturing workers have much lower productivity
> Look back at Figure 10-5, specifically at the left part of the figure. How does the historical trade policy of the United States compare with that of developing countries in the 20th century? Why do you think the results seem to have been so different?
> Which countries appear to have benefited the most from international trade during the last few decades? What policies do these countries seem to have in common? Does their experience lend support for the infant industry argument or help to argue against
> The United States has taken action to restrict imports of certain Chinese goods, such as toys containing lead and seafood that doesn’t meet health standards, in order to protect U.S. consumers. Some people have said this shows a double standard: If we’re
> If governments make trade policies based on national economic welfare, is the problem of trade warfare still represented by a Prisoner’s dilemma game as in Table 10-3? What is the equilibrium solution to the game if governments formulat
> Give an intuitive explanation for the optimal tariff argument.
> There is no point in the United States complaining about trade policies in Japan and Europe. Each country has a right to do whatever is in its own best interest. Instead of complaining about foreign trade policies, the United States should let other coun
> Upon Poland’s entering the European Union, suppose it is discovered that the cost of automobile production in Poland is €20,000 while it is €30,000 in Germany. Suppose the EU, which has a customs union,
> Suppose demand and supply are exactly as described in problem 3, but there is no marginal social benefit to production. However, for political reasons the government counts a dollar’s worth of gain to producers as being worth $3 of either consumer gain o
> A small country can import a good at a world price of 10 per unit. The domestic supply curve of the good is S = 20 + 10P. The demand curve is D = 400 - 5P. In addition, each unit of production yields a marginal social benefit of 10. a. Calculate the t
> Which of the following are potentially valid arguments for tariffs or export subsidies, and which are not? Explain your answers. a. “The more oil the United States imports, the higher the price of oil will go in the next world shortage.” b. “The growing
> Despite major gains, Chinese manufacturing workers have much lower productivity than their U.S. counterparts. Chinese service workers are relatively more productive, but most services aren’t tradable. So which matters for Chinese wages—smanufacturing or
> For a small country like the Philippines, a move to free trade would have huge advantages. It would let consumers and producers make their choices based on the real costs of goods, not artificial prices determined by government policy; it would allow esc
> The nation of Acirema is “small” and unable to affect world prices. It imports peanuts at the price of $10 per bag. The demand curve is D = 400 - 10P. The supply curve is S = 50 + 5P. Determine the free trade equilibrium. Then calculate and graph the
