Question: Gordon is the sole proprietor of Fashion

> What limits are placed on deductions for charitable contributions?

> Inga, an attorney, completed a job for a client in November 2017. If she bills the client immediately, she will receive her $10,000 fee before the end of the year. By delaying the billing for a month, she will not receive the $10,000 until 2018. What

> Why is interest paid on a loan used to purchase municipal bonds not deductible?

> In 2011, Awnings, Inc., issues $200,000 of 15%, 20-year bonds payable at par. During 2017, when Awnings' bonds are trading at 93, the company purchases and retires $100,000 par value of the bonds. Identify the tax issue(s) posed by the facts presented.

> In what year(s) are points paid to acquire a loan deductible? Explain.

> Which types of interest are deductible as itemized deductions? What limitations (if any) are imposed on the deduction?

> Explain the limitations placed on deductions for medical expenses.

> One general requirement for deduction is that the expense be the taxpayer's, not that of another. Is this always true? Explain.

> What is(are) the main difference(s) between deductions for AGI and deductions from AGI?

> Harold works for the Zanten Corporation. Ken is self-employed. Zanten pays all of Harold's medical insurance premiums, whereas Ken purchases medical insurance from his insurance agent. Explain how the payments of Ken's and Harold's medical insurance a

> Chapter 6 discusses expenditures of individuals that are deductible for adjusted gross income (e.g., alimony) and explains the advantage of having an expenditure classified as a deduction for adjusted gross income. Chapter 8 discusses expenditures that

> Jay is single and works as a salesman. In December of the current year, he is selected as the company's outstanding salesperson. In recognition of this honor, he receives a $75,000 bonus, which puts him in the 39.6% tax bracket. Jay owns 2,400 shares

> Tom has $40,000 to invest and seeks your advice. A partner at Global Investments has proposed two investment opportunities: a real estate limited partnership or a five-year investment contract that will pay interest of 8% annually and return his origina

> Michiko and Saul are planning to attend the same university next year. The university estimates tuition, books, fees, and living costs to be $12,000 per year. Michiko's father has agreed to give her the $12,000 she needs to attend the university. Saul ha

> Herman sells his carpet-cleaning business to Elki. As part of the sales agreement, Elki pays Herman $3,000 for his agreement not to open another carpet-cleaning business in the area for 3 years. Identify the tax issue(s) posed by the facts presented.

> Marlene opens an outdoor sports complex that features batting cages, miniature golf, and a driving range. She invests $100,000 of her own money and borrows $750,000 from her bank. She uses $475,000 of the loan proceeds to acquire land and construct the

> Post Haste, incorporated in 2015, suffers a net operating loss of $80,000 in 2017. Post Haste had a net operating loss of $30,000 in 2015 and taxable income of $65,000 in 2016. Allison, the financial vice president of Post Haste, expects 2018 to be a b

> Habiby, Inc., has the following income and expenses for 2015 through 2018. What is the amount of tax that Habiby should pay each year? 2015 $ 280,000 $ 300,000 $ 290.000 (180,000) (200,000) 2016 2017 2018 $ 320,000 (220,000) Income Expenses Taxabl

> The Graves Corporation was incorporated in 2016 and incurred a net operating loss of $35,000. The company’s operating income in 2017 was $47,000. Because of a downturn in the local economy, the company suffers a net operating loss of $21,000 in 2018.

> Faith, who is single, sells the following assets during 2017: • 20,000 shares of qualified small business stock at a loss of $62,000. Faith bought the stock in 2012. • 1,200 shares of Geelong Industries at a gain of $4,500. Faith bought the stock in 2014

> Andy sells the following assets during the year. Gain (Loss) Personal automobile…………..$ (2,000) ABC stock……………………………4,800 Per

> Jamila is involved in an auto accident during the current year that totally destroys her car. She purchased the car 2 years ago for $28,000. Jamila used the car in her business 75% of the time over the past 2 years. She had properly deducted $4,000 in

> Marsha owns a two-family condominium in southern California that she paid $140,000 for in 2002. One unit has 2,400 square feet of space, and the other has 1,600 square feet. Marsha uses the 2,400-square-foot unit as a vacation home and rents the other

> Kevin is the sole proprietor of Murph's Golf Shop. During the current year, a hurricane hits the beach near Kevin's shop. His business building, which has a basis of $60,000, is damaged. In addition, his personal automobile, for which he paid $22,000,

> Ghon and Li own a home on Lake Gibran. During a heavy rainstorm, the lake overflows and floods the basement, which is used as their family room. The entire contents of the basement (rug, furniture, stereo, and so on) are destroyed. The insurance adjuster

> During her vacation, Janita found a gold bar from a sunken ship while she was scuba diving off Texas. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.

> Since graduating from college, Mabel has used the firm of R&P to prepare her tax returns. Each January, Mabel receives a summary information sheet, which she fills out and sends to R&P along with the appropriate documentation. Because she has always rece

> Jorge and his wife own a beachfront vacation home in Savannah, Georgia. During the year, high winds from a tropical storm shatter a sliding glass door and rain from the storm causes extensive water damage to the kitchen. Fortunately, during a calm in t

> Leona owns 300 shares of Ross Industries. She acquired the shares on February 17, 2015, for $6,500. On September 17, 2017, she acquires another 200 shares of Ross for $4,800. Two weeks later, a lawsuit is filed against Ross for patent infringement, an

> Ed owns 500 shares of Northern Company for which he paid $15,000 several years ago. On November 24, he purchases an additional 350 shares for $6,300. Ed sells the original 500 shares for $10,000 on December 14. What are the effects of the December 14

> Darlene owns 500 shares of Sandmayor, Inc., common stock that she purchased several years ago for $20,000. During the current year, the Sandmayor stock declines in value. Darlene decides to sell the stock to realize the tax loss. On December 17, she s

> Howard Company is 100% owned by Rona. During the current year, Howard sells some land to Rona for $50,000 that had cost Howard $80,000 and that had a fair market value of $100,000. Write a letter to Rona explaining the tax effects of the sale.

> Elliot sells some stock to his sister, Nancy, for $4,000. His basis in the stock is $6,000. Several years later, Nancy sells the stock for $7,000. a. What is the effect of the sales on Elliot and Nancy? b. Assume that the subsequent sale by Nancy is

> Katelyn purchased 300 shares of Condine, Inc., stock in 2015 for $9,000. During 2017, she sells 200 shares of Condine to her brother, Jon, for $3,600 and the remaining 100 shares to an unrelated third party for $2,000. a. Assuming that these are her o

> Evita sells 2 pieces of land during the current year. She had used the first piece as a parking lot for her pet store. (She owns the store as a sole proprietor.) The land cost Evita $45,000, and she sells it for $28,000. The second piece is a building

> Rick, a single taxpayer, owns 30,000 shares of qualifying small business stock that he had purchased for $300,000. During the current year, he sells 10,000 of the shares for $25,000. a. What are the tax effects for Rick from selling the shares? b. Ass

> 1. Lynn and Laurie use the cash method of accounting and file their return on a calendar-year basis. Unless otherwise stated, assume that the Norris’ want to minimize the current year’s tax liability. 2. Lynn is 43 yea

> Sonya, who is single, owns 20,000 shares of Malthouse Corporation stock. She acquired the stock in 2014 for $75,000. On August 12, 2017, Sonya’s father tells her of a rumor that Malthouse will file for bankruptcy within the next week. The next day, So

> Reba's 2017 income tax calculation is as follows: Gross income……………………………………………………………………..$ 120,000 Deductions for adjusted gross income…………………………………….(3,000) Adjusted gross income……………………………………………………….$ 117,000 Deductions from adjusted gross income: St

> Newcastle Corporation was incorporated in 2016. For the years 2016 through 2018, Newcastle has the following net capital gain or loss. If Newcastle is in the 34% marginal tax bracket for each of these years, what effect do the net capital gains (losses

> Bongo Corporation is incorporated in 2015. It has no capital asset transactions in 2015. From 2016 through 2019, Bongo has the following capital gains and losses: Assuming that Bongo's marginal tax rate during each of these years is 34%, what is the e

> Labrador Corporation has total capital gains of $18,000 and total capital losses of $35,000 in 2017. Randy owns 25% of Labrador's outstanding stock. What is the effect on Labrador's and Randy's 2017 taxable incomes if a. Labrador is a corporation? Exp

> Goldie sells 600 shares of Bear Corporation stock for $9,000 on December 14, 2017. She paid $27,000 for the stock in February 2014. a. Assuming that Goldie has no other capital asset transactions in 2017, what is the effect of the sale on her 2017 inc

> During 2017, Yoko has total capital gains of $8,000 and total capital losses of $16,000. a. What is the effect of the capital gains and losses on Yoko's 2017 taxable income? Explain. b. Assume that in 2018 Yoko has total capital gains of $10,000 and tot

> Wilbur owns a 25% interest in the Talking Horse Corporation, which is organized as an S corporation. His basis in the property is $15,000. For the year, Talking Horse reports an operating loss of $28,000 and a capital loss of $6,000. Wilbur's adjusted

> Rhoda owns an electronics store that is burglarized during the current year. The burglars destroy the point-of-sale terminal and steal $380 from the cash drawer. The point-of-sale terminal was purchased for $7,500, and its adjusted basis is $3,700. Th

> Stella owns a taxicab company. During the year, two of her cabs are involved in accidents. One is totally destroyed; the other is heavily damaged. Stella is able to replace the destroyed cab with an identical model for $5,500. Her adjusted basis in th

> Marvin and Tracy Peery’s 2016 taxable income is $87,830 before considering the effect of their investment activities. Details of their 2016 sales of investment assets follows: / The Form 1099 Marvin and Tracy received from their broker indic

> Assume the same facts as in problem 47. What is FFF's allowable casualty loss deduction under each of the following situations? a. A comparable van sells for $4,000. After the accident, the insurance adjuster estimates the van was worth $1,500. The in

> Based on the facts of problem 57, calculate the taxable income and the tax liability for a married couple. Facts of problem 57, Total income…………………………………………………….$118,000 Excludable income………………………………………………..2,000 Deductions for adjusted gross income……………

> The Goodson Company is a chain of retail electronics stores. How much of a loss can Goodson deduct in each of the following cases. Explain. a. An employee drops a 65 inch 3D television, cracking the plastic case on the back. The television normally sel

> ABC Company owns a chain of furniture stores. How much loss can ABC Company deduct in each of the following cases? Explain. a. ABC closes a store in a depressed part of the county. Rather than move furniture to other stores, ABC sells furniture that ha

> Claudio owns a passive activity that has a basis of $28,000 and a fair market value of $38,000. The activity has suspended losses of $16,000. To reduce their estate, every year Claudio and his wife give their son Anthony and his wife a gift of approxima

> Masaya owns a passive activity that has a basis of $32,000 and a suspended loss of $13,000. Masaya's taxable income from active and portfolio income is $73,000. a. What is the effect on Masaya's taxable income if he sells the passive activity for $46,000

> Return to the facts of problem 39. Assume that Jeremy gives the property to his son Felipe when the property has a fair market value of $37,000. What is the effect of the gift on Jeremy's taxable income? Felipe's taxable income? Data from Problem 39:

> Return to the facts of problem 39. Assume that Jeremy dies when the passive activity has a fair market value of $25,000. What is the effect on Jeremy's taxable income for the year he dies? Data from problem 39: Jeremy owns a passive activity that has a

> Return to the facts of problem 39. Assume that Jeremy dies when the passive activity has a fair market value of $37,000. What is the effect on Jeremy's taxable income for the year he dies? Data from problem 39: Jeremy owns a passive activity that has

> What are the three basic tests that an expense must satisfy to be deductible?

> Jeremy owns a passive activity that has a basis of $30,000 and a suspended loss of $16,000. His taxable income from active and portfolio income is $81,000. a. What is the effect on Jeremy's taxable income if he sells the passive activity for $37,000?

> Return to the facts of problem 37. At the end of 2018, Mason sells the passive activity that generated the losses for $16,000. What is the effect on his taxable income if his basis in the activity sold is a. $4,000? b. $21,000? Data from Problem 37: M

> Mason owns a passive activity that generates a loss of $14,000 in 2016, $12,000 in 2017, and income of $4,000 in 2018. In 2017, Mason purchases a second passive activity that has passive income of $6,000 in 2017 and $10,000 in 2018. Discuss the effect

> Based on the following information, what are the taxable income and the tax liability for a single individual? Total income…………………………………………………….$118,000 Excludable income………………………………………………..2,000 Deductions for adjusted gross income…………………….2,500 Deduct

> Return to the facts of problem 35. In the next year, Janet has a taxable income from her salary and investment activities of $62,000. The results for her 3 passive activities are Passive Activity 1………………………………………$ 15,000 Passive Activity 2……………………………

> Janet has a taxable income of $54,000 from her salary and investment assets. She also owns 3 passive activities that have the following income (loss) for the year: Passive Activity 1…………………………….$ 12,000 Passive Activity 2…………………………..$ (18,000) Passi

> Jacqueline is a 60% owner of a rental property and has a significant role in the management of the property. During the current year, the property has a rental loss of $21,500. What is the effect of the rental property on her taxable income, if her adj

> Ivan and Olga own a duplex. They collect the rents and make repairs to the property when necessary. That is, they are active participants in the rental activity. During the current year, the duplex has gross rents of $16,000 and total allowable deduct

> Katrina is the sole owner of rental real estate that produces a net loss of $18,000 in 2016 and $22,000 in 2017 and income of $9,000 in 2018. Her adjusted gross income, before considering the rental property for the years 2016 through 2018, is $115,000,

> Mort is the sole owner of rental real estate that produces a net loss of $18,000 in 2016 and $20,000 in 2017 and income of $6,000 in 2018. His adjusted gross income, before considering the rental property for the years 2016 through 2018, is $120,000, $1

> Julio and Rosetta are retired and receive $12,000 in Social Security benefits during the current year. They also receive $10,000 in interest and taxable pension payments of $30,000. Prepare a spreadsheet calculating the amount of Social Security income

> Prizes and awards are generally taxable. Under what conditions is the receipt of a prize or award not taxable?

> Carlos is a 25% owner of CEBJ Builders, a company that specializes in residential construction. The other 75% of CEBJ is owned by his three brothers. During the year, Carlos spends 1,800 hours managing the operations of CEBJ. He also is the 100% owner

> Aretha and Betina own a 10-unit apartment complex. Aretha owns a 60% interest in the apartment complex, and Betina has a 40% interest. Aretha is an investment banker and spends 120 hours helping to manage the apartment complex. Betina is the co-owner

> Sidney and Gertrude Pearson own 40% of Bearcave Bookstore, an S corporation. The remaining 60% is owned by their son Boris. Sidney and Gertrude do not participate in operating or managing the store and they invested $19,000 in the business when it open

> Which of the following are passive activities? a. Marvin is a limited partner in the Jayhawk Beach Club and owns a 20% interest in the partnership. The partnership's sole asset is a resort hotel. b. Marcie owns a royalty interest in an oil and gas opera

> Classify each of the following transactions as a deductible expense, a nondeductible expense, or a loss: a. Nira sells for $4,300 stock that cost $6,000. b. Chiro Medical, Inc., pays $2,200 for subscriptions to popular magazines that it places in its wai

> Which of the following would be a passive activity? Explain. a. Kevin is a limited partner in Marlin Bay Resort and owns a 15% interest in the partnership. b. Tom owns a 15% interest in a real estate development firm. He materially participates in the ma

> A taxpayer has the following income (losses) for the current year: Active Income Portfolio Income Passive Income $43,000 $29,000 $(27,000) What is the taxpayers taxable income (loss) if a. The taxpayer is a single

> A taxpayer has the following income (losses) for the current year: / What is the taxpayers taxable income (loss) if a. The taxpayer is a publicly held corporation? b. The taxpayer is a closely held corporation? c. The taxpayer is a single individual

> Return to the facts of problem 21. In the next year, Carlos has a loss from the dry cleaning store of $18,000. How much of the loss can Carlos deduct? Explain. Problem 21: Carlos opens a dry cleaning store during the year. He invests $30,000 of his o

> A stock appreciation right (SAR) entitles the holder of the right to a cash payment equal to the difference between the fair market value of the stock on the date the SAR is exercised and the fair market value of a share on the date the SAR is granted.

> Carlos opens a dry cleaning store during the year. He invests $30,000 of his own money and borrows $60,000 from a local bank. He uses $40,000 of the loan to buy a building and the remaining $20,000 for equipment. During the first year, the store has a

> Anton is single and a self-employed plumber. His net income from his business is $56,000. He has dividend income of $6,000 and an $8,000 loss from a rental property in which he actively participates. Determine the possible tax consequences of each issu

> Emma owns and operates Conway Camera. One night someone breaks into the store and steals cameras that cost $2,200. The retail price of the cameras is $3,500. Determine the possible tax consequences of each issue you identify.

> Margery owns a passive activity with a basis of $15,000. The activity has a $9,000 suspended loss. Margery sells the passive activity for $22,000. Determine the possible tax consequences of each issue you identify.

> Rita is the sole owner of Video Plus, a local store that rents video games, software, and movies. She works 40 hours a week managing the store. Determine the possible tax consequences of each issue you identify.

> Explain why each of the following expenditures is or is not deductible: a. Lumbar, Inc., pays $12,000 as its share of its employees’ Social Security tax. The $12,000 is deductible. b. Leroy pays a cleaning service $250 per month to clean his real estate

> Briefly state Adam Smith's four requirements for a good tax system.

> Celine opens a jewelry store during the current year. She invests $20,000 of her own money and receives a nonrecourse bank loan of $80,000. During the current year, the store has a loss of $24,000. Determine the possible tax consequences of each issue

> The Readyhough Corporation was incorporated in 2009. During 2016, the corporation had operating income of $80,000. Because of a strike at its major supplier, the corporation had an operating loss of $60,000 in 2017. The corporation expects to rebound

> Rick and Debbie Siravo own a beachfront home in Wrightsville Beach, NC. During the year, they rent it for 20 weeks (140 days) at $1,100 per week and use it 10 days for personal purposes. Rick actively participates in the management of the property, but

> Nathan and Maranda agree to divorce in the current year. In structuring the divorce agreement, Maranda proposes that Nathan assign a $200,000 life insurance policy on himself to her as part of the divorce agreement. Under Maranda's proposal, Nathan wou

> Adela owns rental real estate that generated a $27,000 loss during the current year. Using the information below as a guide, prepare a spreadsheet calculating her adjusted gross income. It should be flexible enough to calculate Adela's adjusted gross i

> Suzanne is married and the sole owner of Laidlaw Corporation. When the corporation was established in 2006, she received 10,000 shares of qualified small business stock in exchange for her $100,000 investment. On four occasions, Suzanne made loans tota

> Carla is an engineer for Snyder Corporation and travels frequently. On a recent business trip to Indianapolis, she checks into her hotel room early on Sunday afternoon and then spends the rest of the day touring the city. When she goes to put on her e

> The Internal Revenue Service provides information on a variety of tax issues in its publication series. These publications can be found on the IRS world wide web site (http://www.irs.gov/). Go to the IRS World Wide Web site and find publications with i

> Alicia, Bob and Carol are equal partners in, Dunning Law Associates. In 2011, Alicia, in an attempt to maximize the firms return on its investment portfolio, encourages her partners to acquire $90,000 of stock in a local Internet provider. The stock wa

> George is single and has adjusted gross income of $37,000. He discovers termites in the basement of his house and pays $6,200 to fix the damage. His insurance company will not reimburse him for the damage. Determine the possible tax consequences of eac

> On January 1, 2017, Brenda acquires 200 shares of Disney stock for $8,000. She sells 200 shares of the stock on September 2, 2017, for $30 per share. On September 23, 2017, Brenda acquires 400 shares of Disney stock for $10,400. Determine the possible

> Classify the following items as ordinary income, a gain, or an exclusion: a. The salary received by an employee b. Dividends of $400 received on 100 shares of corporate stock c. Sale for $10,000 of an antique chair that cost $3,500 d. Rental income from

> Alphonse sells stock with a basis of $5,500 to his brother, Conner, for $4,000. His brother sells it later in the year for $5,100. Determine the possible tax consequences of each issue you identify.