Esther owns a large home on the Southeast Coast. Her home is surrounded by large, mature oak trees that significantly increase the value of her home. In September 2021, a hurricane damaged many of the trees surrounding her home; her region was declared a Federal disaster area as a result of the hurricane’s damage. In October 2021, Esther engaged a local arborist to evaluate and treat the trees, but five of the largest trees were seriously weakened by the storm. These trees died from disease in 2022. Esther has ascertained that the amount of the casualty loss from the death of the five trees is $25,000; however, she is uncertain in which year to deduct this loss and has come to you for advice. Discuss whether the casualty loss should be deducted in the calculation of Esther’s 2021 or 2022 taxable income. Partial list of research aids: Reg. § 1.165–1. Oregon Mesabi Corporation, 39 B.T.A. 1033 (1939).
> Lara uses the standard mileage method for determining auto expenses. During 2021, she used her car as follows: 9,000 miles for business, 2,000 miles for personal use, 2,500 miles for a move to a new job, 1,000 miles for charitable purposes, and 500 miles
> Use information about individual income tax returns available at the IRS Tax Stats website (irs.gov/statistics/soi-tax-stats-individual-income-tax-returns) to find data on the number of individuals who report tax-exempt interest income on their tax retur
> Apply the tax benefit rule to determine the amount of the state income tax refund included in gross income in 2021. a. Myrna and Geoffrey filed a joint tax return in 2020. Their AGI was $85,000, and itemized deductions were $25,500, which included $7,000
> A taxpayer is considering two alternative investments. A Series EE U.S. government savings bond accrues 3.5% interest each year. The bond matures in three years, at which time the principal and interest will be paid. Alternatively, a bank will pay the ta
> Find a newspaper article that discusses tax planning for casualty losses when a Federal disaster area designation is made. Does the article convey the pertinent tax rules correctly? Then list all of the locations identified by the President as Federal di
> Kelly decided to invest in Lime, Inc. common stock after reviewing Lime’s public disclosures, including recent financial statements and a number of press releases issued by Lime. On August 7, 2019, Kelly purchased 60,000 shares of Lime for $210,000. In M
> There are significant tax planning opportunities related to fixed asset acquisition (and depreciation). Search out how large public accounting firms are assisting clients in this area. Summarize your findings in an e-mail to your instructor
> Mark and Lisa were divorced in 2020. In 2021, Mark has custody of their children, but Lisa provides nearly all of their support. Who is entitled to claim the children as dependents?
> Locate a financial calculator app or program that assesses the wisdom of buying versus leasing a new car. Use it to work through Problem 46 in this chapter.
> Caden and Lily are divorced on March 3, 2020. For financial reasons, however, Lily continues to live in Caden’s apartment and receives her support from him. Caden does not claim Lily as a dependent on his 2020 Federal income tax return but does so on his
> How many U.S. individuals claim a deduction for casualties? Does it vary by size of income (AGI)? How do casualty loss deductions compare to the amounts of other itemized deductions claimed by taxpayers? Go to the IRS tax statistics website (irs.gov/stat
> Which of the following is not a deduction for AGI? a. Alimony paid for a divorce finalized in 2018. b. Business rent on a self-employed business. c. Property taxes paid on your primary residence. d. One half of self-employment tax.
> Jeffrey Dean, a Master’s Degree candidate at North State Central University, was awarded a $15,000 scholarship from North State Central in the current year. During the current year, he paid the following expenses: Tuition……………………….. $12,000 Books……………………
> Which of the following is a deduction for AGI? a. Charitable contributions of property. b. Alimony paid pursuant to a 2015 divorce agreement. c. State income taxes. d. Mortgage interest paid on your primary residence.
> Bigham Corporation, an accrual basis calendar year taxpayer, sells its services under 12- and 24 month contracts. The corporation provides services to each customer every month. On July 1, 2021, Bigham sold the following customer contracts: Length of Con
> Calculate the taxpayer’s 2021 qualified business income deduction for a qualified trade or business: Filing status: ……………………………………………………………..Single Taxable income: ……………………………………………………$180,000 Net capital gains: …………………………………………………………… $0 Qualified busin
> Calculate the taxpayer’s 2021 qualified business income deduction for a qualified trade or business: Filing status: …………………………………………….Single Taxable income: ………………………………….$100,000 Net capital gains: ………………………………………….$0 Qualified business income (QBI): ……
> Which of the following is the overall limitation to the qualified business income (QBI) deduction? a. Lesser of 50% of combined QBI or 20% of the taxpayer’s taxable income in excess of net capital gain b. Lesser of combined QBI or 20% of the taxpayer’s t
> What is the basic deduction calculation for the qualified business income deduction? a. 30% 3 Qualified business income (QBI) b. 20% 3 W–2 wages c. 20% 3 Qualified business income (QBI) d. 30% 3 W–2 wages
> Which of the following is considered a specified service trade or business (SSTB) for purposes of the qualified business income deduction? a. Accounting firm b. Manufacturing company c. Engineering firm d. Architectural services
> Where is the deduction for qualified business income (QBI) applied in the individual tax formula? a. As an adjustment to arrive at adjusted gross income b. As an itemized deduction c. As an alternative to the standard deduction d. As a deduction from adj
> Bob and Nancy are married and file a joint return in 2020. They are both under age 50 and employed, with wages of $50,000 each. Their total AGI is $112,000. Neither of them is an active participant in a qualified plan. What is the maximum traditional IRA
> Data, Inc., purchased and placed in service $5,000 of office furniture on August 24, year 3. This is the only asset purchase during the year. Code § 179 expensing and bonus depreciation were not elected. Using the excerpt of the MACRS half-ye
> Mark and Lucy owned two stocks, Tinker Inc., and Chance Inc., that became worthless during year 8. The adjusted basis in Tinker was $80,000. Tinker was incorporated in year 2, and Mark and Lucy purchased their stock in year 4. Their adjusted basis in Cha
> Mark and Lucy owned two stocks, Tinker Inc., and Chance Inc., that became worthless during year 8. The adjusted basis in Tinker was $300,000. Tinker was incorporated in year 2, and Mark and Lucy purchased their stock in year 4. Their adjusted basis in Ch
> In 2021, Jack, age 12, has interest income of $4,900 on funds he inherited from his aunt and no earned income. He has no investment expenses. Christian and Danielle (his parents) have taxable income of $82,250 and file a joint return. Assume that no pare
> The Groves own a beach house as a second home. This year, the Groves used the beach house personally for 4 months. For 14 days during the summer, the Groves rented out their beach house for $5,000 total to friends. Which statement is true regarding the t
> The Griffins own a mountain cabin that is used for both personal and rental purposes. In the current year, the Griffins rented the cabin out for 150 days and used it personally for 50 days. Assume that the Griffins itemize their deductions. Which of the
> Bob is a farmer and is required to use the accrual method. At the beginning of the year, Bob has inventory, including livestock held for resale, amounting to $10,000. During the year, Bob purchased livestock totaling $3,000. Bob’s ending inventory was $4
> Which of the following is taxable as gross income? a. Child support received based on a divorce agreement executed in 2015. b. Alimony received based on a divorce agreement executed in 2015. c. Child support received based on a divorce agreement executed
> The Tiller family has an adjusted gross income of $200,000 in 2020. The Tillers have two children, ages 12 and 13, who qualify as dependents. All of the Tillers’ income is from wages. What is the Tillers’ child tax cre
> In 2020, Madison and Nick Koz have two children, ages 8 and 10. Both children meet the definition of qualifying child. The Koz family has adjusted gross income of $300,000. What is the amount of the child tax credit on the couple’s income tax return? a.
> Jonathan Jones is a 19-year-old full-time college student at the local community college. He lives in an apartment near campus during the school year and returns home for the summer break and holidays. Jonathan earned $5,000 this year working at the camp
> Heather is single and has one son, Rhett, who is 19 years old. Rhett lived at home for four months of the current tax year before moving away to take a full-time job in another city. Heather provided more than half of Rhett’s support for the taxable year
> Susie, John, Luke, and Will provide support for their 80-year-old mother, Joyce. Joyce lives by herself in an apartment in Miami, Florida. Joyce earned $5,000 this year working at her church. Joyce provides 5% of her own support. Susie provides 30% of Jo
> Bill and Anne Chambers are married and file a joint return. They have no children. Their college friend Ryan lived with them for the entire current tax year. Ryan is 40 years old and earned $2,000 at a part-time job and received $25,000 in municipal bond
> Compute the 2021 tax liability and the marginal and average tax rates for the following taxpayers (use the 2021 Tax Rate Schedules in Appendix A for this purpose): a. Chandler, who files as a single taxpayer, has taxable income of $94,800. b. Lazare, who
> Katherine and Bill Grant have two children. Kelly is 22 years old and is a full-time student. She lives on campus at an out-of-state university but will return home for the summer. Kelly earns $5,000 a year working part-time. Her parents provide her with
> Jeff and Rhonda are married and have two children, Max and Jen. Max is 20, attends college in the Los Angeles area full-time, and works as a stunt double for a television show while he is in school. Max earns $15,000 per year as a stunt double and lives
> Visit the websites of a few public accounting firms to learn how they are using data analytics and visualization in the tax function. In an e-mail to your instructor, explain what you found, provide the source(s) you used, and explain how you think the d
> How do U.S. individuals generate their income? Does it vary by size of income (AGI)? Go to the IRS tax statistics website (irs.gov/statistics), and download a recent tax year’s information on “sources of income.” Compare the following types of income by
> Your client Murray reported to the Environmental Protection Agency that his employer was illegally dumping chemicals into a river. His charges were true, and Murray’s employer was fined. In retaliation, Murray’s employer fired him and made deliberate eff
> Kathy and Brett Ouray married in 2003. They began to experience marital difficulties in 2017 and, in the current year, although they are not legally separated, consider themselves completely estranged. They have contemplated getting a divorce. However, b
> Analyze S. 700 (116th Congress) introduced by Senator John Thune to provide a new approach to provide freelance (“gig”) workers independent contractor status. Also see his press release of March 7, 2019, at thune.senate.gov/public/index.cfm/2019/3/thune-
> Do depreciation deductions vary by entity type or by industry? Go to the IRS Tax Statistics page (irs.gov/statistics), and review the spreadsheets containing data for corporations, partnerships, and nonfarm proprietorships by sector or industry. You can
> Juan owns a business that acquires exotic automobiles that are high-tech, state-of-the-art vehicles with unique design features or equipment. The exotic automobiles are not licensed or set up to be used on the road. Rather, the cars are used exclusively
> In 2017, Jed James began planting a vineyard. The costs of the land preparation, labor, rootstock, and planting were capitalized. The land preparation costs do not include any nondepreciable land costs. In 2021, when the plants became viable, Jed placed
> Paul and Sonja, who are married, had itemized deductions of $13,200 and $400, respectively, during 2021. Paul suggests that they file separately—he will itemize his deductions from AGI, and she will claim the standard deduction. a. Evaluate Paul’s sugges
> Your client, Dave’s Sport Shop, sells sports equipment and clothing in three retail outlets in New York City. During 2021, the CFO decided that keeping track of inventory using a combination of QuickBooks and spreadsheets was not an efficient way to mana
> During 2021, your client, Kendra Adams, was the chief executive officer and a shareholder of Maze, Inc. She owned 60% of the outstanding stock of Maze. In 2018, Kendra and Maze, as co-borrowers, obtained a $100,000 loan from United National Bank. This lo
> Rex and Agnes Harrell purchased a beach house at Duck, North Carolina, in early 2021. Although they intended to use the beach house occasionally for recreational purposes, to help pay the mortgage payments, property taxes, and maintenance costs, they als
> Gray Chemical Company manufactured pesticides that were toxic. Over the course of several years, the toxic waste contaminated the air and water around the company’s plant. Several employees suffered toxic poisoning, and the Environmental Protection Agenc
> Your client, Simon Che, is an avid Texas Rangers fan. Last March at the Rangers’ home opener, as a result of a random drawing of those in attendance at the game, Simon won 300 Shipley Do-Nut coupons. Each coupon entitled him to a cup of coffee and a free
> Your client is a new retailer who often issues store gift (debit) cards to customers in lieu of a cash refund. You recall that a special rule allows accrual method taxpayers to defer all or a portion of advance payments received. Conduct research to dete
> (1) Use an internet search engine (e.g., Google) to find Internal Revenue Code § 61(a). What is defined in this Code Section? Is the definition broad or narrow? (2) Go to the U.S. Tax Court website (ustaxcourt.gov), and find the U.S Tax Court case in whi
> Compute the taxable income for 2021 for Emily on the basis of the following information. Her filing status is single. Salary………………………………………………………………………………$85,000 Interest income from bonds issued by Xerox……………………………1,100 Alimony payments received (divorc
> Compute the taxable income for 2021 in each of the following independent situations: a. Aaron and Michele, ages 40 and 41, respectively, are married and file a joint return. In addition to four dependent children, they have AGI of $125,000 and itemized d
> Compute the 2021 standard deduction for the following taxpayers. a. Ellie is 15 and claimed as a dependent by her parents. She has $800 in dividend income and $1,400 in wages from a part-time job. b. Ruby and Woody are married and file a joint tax return
> As a result of a cancer diagnosis in early 2021, Laura has begun chemotherapy treatments. A cancer specialist has stated that Laura has less than one year to live. She has incurred many medical bills and other general living expenses and is in need of ca
> Vito is the sole shareholder of Vito, Inc. He is also employed by the corporation. On June 30, 2021, Vito borrowed $8,000 from Vito, Inc., and on July 1, 2022, he borrowed an additional $10,000. Both loans were due on demand. No interest was charged on t
> Ridge is a generous individual. During the year, he made interest-free loans to various family members when the Federal rate was 3%. What are the tax consequences of the following loans by Ridge: a. On June 30, 2021, Ridge loaned $12,000 to his cousin, J
> Nell and Kirby are in the process of negotiating their divorce agreement, to be finalized in 2021. What should be the tax consequences to Nell and Kirby if the following, considered individually, became part of the agreement? a. In consideration for her
> Faye, Gary, and Heidi each have a one-third interest in the FGH Partnership. The following information is available with respect to the partnership for the year and the amount allocable to each partner. Compute each partner’s gross inco
> Troy, a cash basis taxpayer, is employed by Eagle Corporation, also a cash basis taxpayer. Troy receives a salary of $60,000 per year. He also receives a bonus equal to 10% of all collections from clients he serviced during the year. Determine the tax co
> Freda is a cash basis taxpayer. In 2021, she negotiated her salary for 2022. Her employer offered to pay her $21,000 per month in 2022 for a total of $252,000. Freda countered that she would accept $10,000 each month for the 12 months in 2022 and the rem
> Drake Appliance Company, an accrual basis taxpayer, sells home appliances and service contracts. Determine the effect of each of the following transactions on the company’s 2021 gross income assuming that the company uses any available options to defer i
> Linda and Don are married and file a joint return. In 2021, they received $12,000 in Social Security benefits and $35,000 in taxable pension benefits and interest. a. Compute the couple’s adjusted gross income on a joint return. b. Don would like to know
> Herbert was employed for the first six months of 2021 and earned $90,000 in salary. During the next six months, he collected $8,800 of unemployment compensation, borrowed $12,000 (using his personal residence as collateral), and withdrew $2,000 from his
> On January 1, 2021, Kunto, a cash basis taxpayer, pays $46,228 for a 24-month certificate of deposit. The certificate is priced to yield 4% (the effective interest rate) with interest compounded annually. No interest is paid until maturity, when Kunto re
> Marlene, a cash basis taxpayer, invests in Series EE U.S. government savings bonds and bank certificates of deposit (CDs). Determine the tax consequences of the following on her 2021 gross income: a. On September 30, 2021, she cashed in Series EE bonds f
> Determine the effects of the following on a cash basis taxpayer’s gross income for 2021 and 2022: a. On the morning of December 31, 2021, the taxpayer received a $1,500 check from a customer. The taxpayer did not cash the check until January 3, 2022. b.
> Each year, Tom and Cindy Bates normally have itemized deductions of $22,000 (which includes a $4,000 pledge payment to their church). On the advice of a friend, they do the following: in early January 2021, they pay their pledge for 2020; during 2021, th
> During 2021, Chester (a married taxpayer filing a joint return) had the following transactions involving capital assets: Gain on the sale of an arrowhead collection (acquired as an investment at different times but all pieces have been held for more than
> During 2021, Inez (a single taxpayer) had the following transactions involving capital assets: Gain on the sale of unimproved land (held as an investment for 3 years)………………..$ 6,000 Loss on the sale of a camper (purchased 2 years ago and used for family
> Terri, age 16, is a dependent of her parents. During 2021, Terri earned $5,000 in interest income and $3,000 from part-time jobs. a. What is Terri’s taxable income? b. How much of Terri’s income is taxed at her rate? At her parent’s rate? c. Can the pare
> Paige, age 17, is a dependent of her parents. Her parents report taxable income of $120,000 on their joint return (no qualified dividends or capital gains). During 2021, Paige earned $3,900 pet sitting and $4,300 in interest on a savings account. What ar
> Nadia died in 2020 and is survived by her husband, Jerold (age 44); her married son, Travis (age 22); and her daughter-in-law, Macy (age 18). Jerold is the executor of his wife’s estate. He maintains the household where he, Travis, and Macy live and furn
> Christopher died in 2019 and is survived by his wife, Chloe, and their 18- year-old son, Dylan. Chloe is the executor of Christopher’s estate and maintains the household in which she and Dylan live. All of their support is furnished by
> During the year, Alva received dividends on her stocks as follows: Amur Corporation (a French corporation whose stock is traded on an established U.S. securities market) …………………………………..$60,000 Blaze, Inc., a Delaware corporation……………………………………. 40,000 Gra
> Euclid acquires a 7-year class asset on May 9, 2021, for $80,000 (the only asset acquired during the year). Euclid does not elect immediate expensing under § 179. She does not claim any available additional first-year depreciation. Calculate Euclid’s cos
> Sarah and Brandi are engaged and plan to get married. During 2021, Sarah is a full-time student and earns $9,000 from a part-time job. With this income, student loans, savings, and nontaxable scholarships, she is self-supporting. For the year, Brandi is
> Which of the following individuals are required to file a tax return for 2021? Should any of these individuals file a return even if filing is not required? Why or why not? a. Patricia, age 19, is a self-employed single individual with gross income of $5
> Morgan (age 45) is single and provides more than 50% of the support of Tammy (a family friend), Jen (a niece, age 18), and Jerold (a nephew, age 18). Both Tammy and Jen live with Morgan, but Jerold (a French citizen) lives in Canada. Morgan earns a salar
> Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children (ages 4, 8, 11, and 14) who live with her. She also maintains the household in which her parents live and furnished 60% of their support. Besides interest
> Walter and Nancy provide 60% of the support of their daughter (age 18) and son-in-law (age 22). The son-in-law (John) is a full-time student at a local university, and the daughter (Stella) holds various part-time jobs from which she earns $11,000. Walte
> Taylor, age 18, is claimed as a dependent by her parents. For 2021, she has the following income: $6,000 wages from a summer job, $800 interest from a money market account, and $300 interest from City of Chicago bonds. a. What is Taylor’s taxable income
> Wesley and Camilla (ages 90 and 88, respectively) live in an assisted care facility and for 2020 and 2021 received their support from the following sources: Percentage of Support Social Security benefits………………………………………….16% Son………………………………………………
> During 2021, Jenny, age 14, lives in a household with her father, uncle, and grandmother. The household is maintained by the uncle. The parties, all of whom file separate returns, have AGI as follows: father ($30,000), uncle ($50,000), and grandmother ($
> Trip Garage, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis taxpayer that repairs automobiles. In late December 2021, the company repaired Samuel Mosley’s car and charged him $1,000. Samuel did not think the problem had been fixed and
> Determine the gross income of the beneficiaries in the following cases: a. Justin’s employer was downsizing and offered employees an amount equal to one year’s salary if the employee would voluntarily retire. b. Trina contracted a disease and was unable
> In November 2021, Kortney (who is a self-employed management consultant) travels from Chicago to Barcelona (Spain) on business. She is gone 10 days (including 2 days of travel) during which time she spends 5 days conducting business and 3 days sightseein
> For tax year 2021, determine the number of dependents in each of the following independent situations: a. Ben and Molly (ages 48 and 46, respectively) are married and furnish more than 50% of the support of their two children, Libby (age 18) and Sam (age
> Al is a medical doctor who conducts his practice as a sole proprietor. During 2021, he received cash of $280,000 for medical services. Of the amount collected, $40,000 was for services provided in 2020. At the end of 2021, Al had accounts receivable of $
> Determine the amount of the standard deduction allowed for 2021 in the following independent situations. In each case, assume that the taxpayer is claimed as another person’s dependent. a. Curtis, age 18, has income as follows: $700 interest from a certi
> Compute the taxable income for 2021 for Aiden on the basis of the following information. Aiden is married but has not seen or heard from his wife since 2019. Salary………………………………………………………………………………………………….$ 80,000 Interest on bonds issued by City of Boston…
> Tristan, who is single, operates three sole proprietorships that generate the following information in 2021 (none are “specified services” businesses). Tristan chooses not to aggregate the businesses. She also earns $1
> Ben and Molly are married and will file jointly. Ben generates $300,000 of qualified business income from his single-member LLC (a law firm). He reports his business as a sole proprietorship. Wages paid by the law firm amount to $40,000; the law firm has
> Scott and Laura are married and will file a joint tax return. Scott has a sole proprietorship (not a “specified services” business) that generates qualified business income of $300,000. The proprietorship pays W–2 wages of $40,000 and holds property with
> Donald (a married taxpayer filing jointly) owns a wide variety of commercial rental properties held in a single-member LLC. Donald’s LLC reports rental income of $1,500,000. The LLC pays no W–2 wages; rather, it pays a management fee to an S corporation
> Ashley (a single taxpayer) is the owner of ABC LLC. The LLC (which reports as a sole proprietorship) generates QBI of $900,000 and is not a “specified services” business. ABC paid total W–2 wages of $300,000, and the total unadjusted basis of property he
