Question: In late 2014, Randy and Rachel Erwin

> Glenda, a calendar year and cash basis taxpayer, rents property from Janice. As part of the rental agreement, Glenda pays $8,400 rent on April 1, 2015 for the 12 months ending March 31, 2016. a. How much is Glenda’s deduction for rent expense in 2015? b

> Jebali Company reports gross income of $340,000 and other property-related expenses of $229,000 and uses a depletion rate of 14%. Calculate Jebali’s depletion allowance for the current year.

> Ella has $105,000 of losses from a real estate rental activity in which she actively participates. She has other rent income of $25,000 and other passive income of $32,000. Her AGI before considering these items of income and loss is $95,000. How much re

> Mable and Jack file a joint return. For the current year, they had the following items: Salaries………………………………………………………………………………….$120,000 Loss on sale of § 1244 stock acquired two years ago…………………….105,000 Gain on sale of § 1244 stock acquired six months

> Many years ago, Jack purchased 400 shares of Canary stock. During the cur- rent year, the stock became worthless. It was determined that the company “went under” because several corporate officers embezzled a large amount of company funds. Identify the r

> Lucy sells her partnership interest, a passive activity, with an adjusted basis of $305,000 for $330,000. In addition, she has current and suspended losses of $28,000 associated with the partnership and has no other passive activities. Calculate Lucy’s t

> In the current year, Ed invests $30,000 in an oil partnership. He has taxable income for the current year of $2,000 from the oil partnership and withdraws $10,000. What is Ed’s at-risk amount at the end of the year?

> Compute the income tax liability for each of the following unrelated C corporations. a. Darter Corporation has taxable income of $68,000. b. Owl Corporation has taxable income of $10,800,000. c. Toucan Corporation, a personal service corporation, has tax

> Determine the treatment of a loss on rental property under the following facts: Basis ………………………………………. $650,000 FMV before the loss……………………800,000 FMV after the loss……………………. 200,000

> Bob owns a collection agency. He purchases uncollected accounts receivable from other businesses at 60% of their face value and then attempts to collect these accounts. During the current year, Bob collected $60,000 on an account with a face value of $80

> Ray and Carin are partners in an accounting firm. The partners have entered into an arm’s length agreement requiring Ray to purchase Carin’s partnership interest from Carin’s estate if she dies before Ray. The price is set at 120% of the book value of Ca

> Determine Hazel’s Federal gross income from the following receipts for the year. Gain on sale of Augusta County bonds …………………… $800 Interest on U.S. government savings bonds ……………… 400 Interest on state income tax refund …………………………. 200 Interest on Augu

> Wes acquired a mineral interest during the year for $10 million. A geological survey estimated that 250,000 tons of the mineral remained in the deposit. During the year, 80,000 tons were mined, and 45,000 tons were sold for $12 million. Other related exp

> In 2015, Muhammad purchased a new computer for $16,000. The computer is used 100% for business. Muhammad did not make a § 179 election with respect to the computer. He does not claim any available additional first-year depreciation. If Muhammad uses the

> On June 5, 2014, Dan purchased and placed in service a 7-year class asset costing $550,000. Determine the maximum deductions that Dan can claim with respect to this asset in 2014 and 2015.

> During March 2015, Sam constructed new agricultural fences on his farm. The cost of the fencing was $80,000. Sam does not elect immediate expensing under § 179 and he does not claim any available additional first-year depreciation. However, an election n

> Janice acquired an apartment building on June 4, 2015, for $1.6 million. The value of the land is $300,000. Janice sold the apartment building on November 29, 2021. a. Determine Janice’s cost recovery deduction for 2015. b. Determine Janice’s cost recove

> On May 5, 2015, Christy purchased and placed in service a hotel. The hotel cost $10.8 million. Calculate Christy’s cost recovery deductions for 2015 and for 2025.

> Cherry Corporation, a calendar year C corporation, is formed and begins business on April 1, 2015. In connection with its formation, Cherry incurs organizational expenditures of $54,000. Determine Cherry Corporation’s deduction for organizational expendi

> Juan, a sole proprietor, acquires a new 5-year class asset on March 14, 2015, for $200,000. This is the only asset Juan acquired during the year. He does not elect immediate expensing under § 179. Juan does not claim any available additional first-year d

> Sarah Ham, operating as a sole proprietor, manufactures printers in the United States. For 2015, the proprietorship has QPAI of $400,000. Sarah’s modified AGI was $350,000. The W–2 wages paid by the proprietorship to employees engaged in the qualified do

> Quail Corporation anticipates that being positively perceived by the individual who is elected mayor will be beneficial for business. Therefore, Quail contributes to the campaigns of both the Democratic and Republican candidates. The Republican candidate

> Sam and Abby are dependents of their parents, and each has income of $2,100 for the year. Sam’s standard deduction for the year is $1,050, while Abby’s is $2,450. As their income is the same, what causes the difference in the amount of the standard deduc

> William and Abigail, who live in San Francisco, have been experiencing problems with their marriage. They have a 3-year-old daughter, April, who stays with William’s parents during the day because both William and Abigail are employed. Abigail worked to

> Joyce, a widow, lives in an apartment with her two minor children (ages 8 and 10), whom she supports. Joyce earns $33,000 during 2015. She uses the standard deduction. a. Calculate the amount, if any, of Joyce’s earned income credit. b. During the year

> For many years, Loretta Johnson, a single mother of three children, has been struggling to make ends meet by working at two jobs that pay barely the minimum wage and together provide just over $15,000. Fortunately, her housing and food costs have been pa

> Mark and Lisa are approaching an exciting time in their lives as their oldest son, Austin, graduates from high school and moves on to college. What are some of the tax issues Mark and Lisa should consider as they think about paying for Austin’s college e

> Bernadette, a longtime client of yours, is an architect and the president of the local Rotary chapter. To keep up to date with the latest developments in her profession, she attends continuing education seminars offered by the architecture school at Stat

> Jim and Mary Jean are married and have two dependent children under the age of 13. Both parents are gainfully employed and during 2015 earn salaries as follows: $16,000 (Jim) and $5,200 (Mary Jean). To care for their children while they work, they pay El

> Crane and Loon Corporations, two unrelated C corporations, have the following transactions for 2015: a. Compute the dividends received deduction for Crane Corporation. b. Compute the dividends received deduction for Loon Corporation.

> Paul and Karen are married, and both are employed (Paul earns $44,000 and Karen earns $9,000 during 2015). Paul and Karen have two dependent children, both under the age of 13. So they can work, Paul and Karen pay $3,800 to various unrelated parties to c

> Ann and Bill were on the list of a local adoption agency for several years, seeking to adopt a child. Finally, in 2014, good news came their way, and an adoption seemed imminent. They paid qualified adoption expenses of $5,000 in 2014 and $11,000 in 2015

> Linda, age 37, who files as a single taxpayer, had AGI of $280,000 for 2015. She incurred the following expenses and losses during the year: Medical expenses (before the 10%-of-AGI limitation) ……………………………. $33,000 State and local income taxes …………………………

> Ramon had AGI of $180,000 in 2015. He is considering making a charitable contribution this year to the American Heart Association, a qualified charitable organization. Determine the current allowable charitable contribution deduction in each of the follo

> In December of each year, Eleanor Young contributes 10% of her gross income to the United Way (a 50% organization). Eleanor, who is in the 28% marginal tax bracket, is considering the following alternatives for satisfying the contribution. Eleanor has a

> In 2006, Liam, who is single, purchased a personal residence for $340,000 and took out a mortgage of $200,000 on the property. In May of the current year, when the residence had a fair market value of $440,000 and Liam owed $140,000 on the mortgage, he t

> Helen borrowed $150,000 to acquire a parcel of land to be held for investment purposes. During 2015, she paid interest of $12,000 on the loan. She had AGI of $90,000 for the year. Other items related to Helen’s investments include the following: Investm

> In 2015, Kathleen Tweardy incurs $30,000 of interest expense related to her investments. Her investment income includes $7,500 of interest, $6,000 of qualified dividends, and a $12,000 net capital gain on the sale of securities. Kathleen asks you to comp

> Norma, who uses the cash method of accounting, lives in a state that imposes an income tax. In April 2015, she files her state income tax return for 2014 and pays an additional $1,000 in state income taxes. During 2015, her withholdings for state income

> Paul, age 62, suffers from emphysema and severe allergies and, upon the recommendation of his physician, has a dust elimination system installed in his personal residence. In connection with the system, Paul incurs and pays the following amounts during 2

> Chaz transfers cash of $60,000 to a newly formed corporation for 100% of the stock. In its initial year, the corporation has net income of $15,000. The income is credited to the earnings and profits account of the corporation. The corporation distributes

> Michael has always been overweight, and now he has decided to do some- thing about it. He recently read in a news story that the IRS allows a medical expense deduction for the cost of certain weight reduction programs. He scheduled an appointment with hi

> Emma Doyle, age 55, is employed as a corporate attorney. For calendar year 2015, she had AGI of $100,000 and paid the following medical expenses: Medical insurance premiums ……………………………………………………………….…. $3,700 Doctor and dentist bills for Bob and April (E

> Leigh sued an overzealous bill collector and received the following settlement: Damage to her automobile that the collector attempted to repossess ………………$ 3,300 Physical damage to her arm caused by the collector ………………………………………. 15,000 Loss of income wh

> Adrian was awarded an academic scholarship to State University for the 2015–2016 academic year. He received $6,500 in August and $7,200 in December 2015. Adrian had enough personal savings to pay all expenses as they came due. Adrian’s expenditures for t

> Linda and Don are married and file a joint return. In 2015, 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 li

> For each of the following, determine the amount that should be included in gross income: a. Peyton was selected the most valuable player in the Super Bowl. In recognition of this, he was awarded an automobile with a value of $60,000. Peyton did not need

> Alicia and Rafel are in the process of negotiating a divorce agreement. They both worked during the marriage and contributed an equal amount to the marital assets. They own a home with a fair market value of $400,000 (cost of $300,000) that is subject to

> Vella owns and operates an illegal gambling establishment. In connection with this activity, he has the following expenses during the year: Rent ………………………………………… $ 24,000 Bribes ………………………………………. 40,000 Travel expenses ……………………….…… 4,000 Utilities ……………

> Pedro, who is a single taxpayer, had AGI of $328,000 for 2015. He incurred the following expenses during the year: Medical expenses before 10%-of-AGI limitation………………………………………… $12,000 State and local income taxes ………………………………………………………………………. 8,900 Real

> Yvonne and Simon form Ion Corporation. Yvonne transfers equipment (basis of $110,000 and fair market value of $165,000). Simon invests $130,000 of cash. They each receive 100 shares in Ion Corporation, worth $130,000, but Yvonne also receives $35,000 of

> Issac has AGI of $73,400 and incurred the following expenses. How much of the business and personal expenditures are deductible (after any limitation) either as miscellaneous itemized deductions or as other itemized deductions? Cost of uniforms………………………

> Donna donates stock in Chipper Corporation to the American Red Cross on September 10, 2015. She purchased the stock for $18,100 on December 28, 2014, and it had a fair market value of $27,000 when she made the donation. a. What is Donna’s charitable con

> Miller owns a personal residence with a fair market value of $195,000 and an outstanding first mortgage of $157,500. Miller gets a second mortgage on the residence and in return borrows $10,000 to purchase new jet skis. How much of the first and second m

> Troy’s financial records for the year reflect the following: Interest income from bank savings account………………………………. $ 900 Taxable annuity receipts……………………………………………………………. 1,800 Safe deposit box rental (to hold annuity documents) ………………………125 Investment

> Pierre, a cash basis, unmarried taxpayer, had $1,400 of state income tax with- held during 2015. Also in 2015, Pierre paid $455 that was due when he filed his 2014 state income tax return and made estimated payments of $975 toward his 2015 state income t

> Jarrod receives a scholarship of $18,500 from Riggers University to be used to pursue a bachelor’s degree. He spends $12,000 on tuition, $1,500 on books and supplies, $4,000 for room and board, and $1,000 for personal expenses. How much may Jarrod exclud

> Compute the taxable Social Security benefits in each of the following situations: a. Erwin and Eleanor are married and file a joint tax return. They have adjusted gross income of $46,000, no tax-exempt interest, and $12,400 of Social Security benefits.

> Casper and Cecile are divorced this year. As part of the divorce settlement, Casper transferred stock to Cecile. Casper purchased the stock for $25,000, and it had a market value of $43,000 on the date of the transfer. Cecile sold the stock for $40,000 a

> Santiago and Amy are married and file a joint tax return claiming their three children, ages 12, 14, and 18, as dependents. Their AGI is $140,000. Deter- mine the amount of the couple’s child tax credit.

> Mike Saxon is negotiating the purchase of a business. The final purchase price has been agreed upon, but the allocation of the purchase price to the assets is still being discussed. Appraisals on a warehouse range from $1,200,000 to $1,500,000. If a val

> Martin transfers real estate with an adjusted basis of $260,000 and fair market value of $350,000 to a newly formed corporation in exchange for 100% of the stock. The corporation assumes the liability on the transferred real estate in the amount of $300,

> Jamie purchased $100,000 of new office furniture for her business in June of the current year. Jamie understands that if she elects to use ADS to compute her regular income tax, there will be no difference between the cost recovery for computing the regu

> On May 28, 2015, Mary purchased and placed in service a new $20,000 car. The car was used 60% for business, 20% for production of income, and 20% for personal use in 2015. In 2016, the usage changed to 40% for business, 30% for production of income, and

> On June 5, 2014, Leo purchased and placed in service a new car that cost $20,000. The business-use percentage for the car is always 100%. Leo claims any available additional first-year depreciation. Compute Leo’s cost recovery deduction for 2014 and 2015

> On October 15, 2015, Jon purchased and placed in service a used car. The purchase price was $25,000. This was the only business-use asset Jon acquired in 2015. He used the car 80% of the time for business and 20% for personal use. Jon used the MACRS stat

> Jabari Johnson is considering acquiring an automobile at the beginning of 2015 that he will use 100% of the time as a taxi. The purchase price of the automobile is $35,000. Johnson has heard of cost recovery limits on automobiles and wants to know the ma

> Olga is the proprietor of a small business. In 2015, the business’s income, before consideration of any cost recovery or § 179 deduction, is $250,000. Olga spends $600,000 on new 7-year class assets and elects to take the § 179 deduction on them. She doe

> Lori, who is single, purchased 5-year class property for $200,000 and 7-year class property for $400,000 on May 20, 2015. Lori expects the taxable income derived from her business (without regard to the amount expensed under § 179) to be about $800,000.

> Debra acquired the following new assets during 2015. Determine Debra’s cost recovery deductions for the current year. Debra does not elect immediate expensing under § 179. She does not claim any available additional first-ye

> On November 4, 2013, Blue Company acquired an asset (27.5-year residential real property) for $200,000 for use in its business. In 2013 and 2014, respectively, Blue took $642 and $5,128 of cost recovery. These amounts were incorrect; Blue applied the wro

> In 2015, Rose, Inc., has QPAI of $4 million and taxable income of $3 million. Rose pays independent contractors $500,000. Rose’s W–2 wages are $600,000, but only $400,000 of the wages are paid to employees engaged in qualified domestic production activit

> Jocelyn contributes land with a basis of $60 ,000 and fair market value of $90,000 and inventory with a basis of $5,000 and fair market value of $8,000 in exchange for 100% of Zion Corporation stock. The land i s subject to a $15,000 mortgage. Determine

> Blue Corporation, a manufacturing company, decided to develop a new line of merchandise. The project began in 2015. Blue had the following expenses in connection with the project. The new product will be introduced for sale beginning in July 2017. Deter

> Dan Simms is the president and sole shareholder of Simms Corporation, 1121 Madison Street, Seattle, WA 98121. Dan plans for the corporation to make a charitable contribution to the University of Washington, a qualified public charity. He will have the co

> In 2015, Gray Corporation, a calendar year C corporation, holds a $75,000 charitable contribution carryover from a gift made in 2010. Gray is contemplating a gift of land to a qualified charity in either 2015 or 2016. Gray purchased the land as an invest

> For each of the following independent transactions, calculate the recognized gain or loss to the seller and the adjusted basis to the buyer. a. Bonnie sells Parchment, Inc. stock (adjusted basis $17,000) to Phillip, her brother, for its fair market val

> Brittany Callihan sold stock (basis of $184,000) to her son, Ridge, for $160,000, the fair market value. a. What are the tax consequences to Brittany? b. What are the tax consequences to Ridge if he later sells the stock for $190,000? For $152,000?

> Nancy, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $35,000 of expenses associated with this investigation. Based on the regulatory environment f

> Jarret owns City of Charleston bonds with an adjusted basis of $190,000. During the year, he receives interest payments of $3,800. Jarret partially financed the purchase of the bonds by borrowing $100,000 at 5% interest. Jarret’s interest payments on the

> Ella owns 60% of the stock of Peach, Inc. The stock has declined in value since she purchased it five years ago. She is going to sell 5% of the stock to a relative. Ella is also going to make a gift of 10% of the stock to another relative. Identify the r

> Melissa, the owner of a sole proprietorship, does not provide health insurance for her 20 employees. She plans to spend $1,500 lobbying in opposition to legislation that would require her to provide such insurance. Discuss the tax advantages and disadva

> Cardinal Corporation is a trucking firm that operates in the Mid-Atlantic states. One of Cardinal’s major customers frequently ships goods between Charlotte and Baltimore. Occasionally, the customer sends last-minute shipments that are out- bound for Eur

> Grady exchanges qualified property, basis of $12,000 and fair market value of $18,000, for 60% of the stock of Eadie Corporation. The other 40% of the stock is owned by Pedro, who acquired it five years ago. Calculate Grady ‘s current income, gain, or lo

> Linda operates an illegal gambling operation and incurs the following expenses. Which of these expenses can reduce her taxable income? a. Bribes paid to city employees. b. Salaries to employees. c. Security cameras. d. Kickbacks to police. e. Rent on an

> Ted, an agent for Waxwing Corporation, which is an airline manufacturer, is negotiating a sale with a representative of the U.S. government and with a representative of a developing country. Waxwing has sufficient capacity to handle only one of the order

> Duck, an accrual basis corporation, sponsored a rock concert on December 29, 2015. Gross receipts were $300,000. The following expenses were incurred and paid as indicated: Because the coliseum was not scheduled to be used again until January 15, the c

> Sam Jones owns a granite stone quarry. When he acquired the land, Sam allocated $800,000 of the purchase price to the quarry’s recoverable mineral reserves, which were estimated at 10 million tons of granite stone. Based on these estimates, the cost depl

> Wesley and Myrtle (ages 90 and 88, respectively) live in an assisted care facility and for 2014 and 2015 received their support from the following sources: a. Which persons are eligible to claim the dependency exemptions under a multiple support agreemen

> Caden and Lily are divorced on March 3, 2014. For financial reasons, how- ever, Lily continues to live in Caden’s apartment and receives her support from him. Caden does not claim Lily as a dependent on his 2014 Federal income tax return but does so on h

> Which of the following items are exclusions from gross income? a. Alimony payments received. b. Damages award received by the taxpayer for personal physical injury—none were for punitive damages. c. A new golf cart won in a church raffle. d. Amount c

> Paige, age 17, is claimed as a dependent on her parents’ 2015 return, on which they report taxable income of $120,000 (no qualified dividends or capital gains). Paige earned $3,900 pet sitting and $4,100 in interest on a savings account. What are Paige’s

> Jayden calculates his 2015 income tax by using both the Tax Tables and the Tax Rate Schedules. Because the Tax Rate Schedules yield a slightly lower tax liability, he plans to pay this amount. a. Why is there a difference? b. Is Jayden’s approach permi

> Roy and Brandi are engaged and plan to get married. During 2015, Roy is a full-time student and earns $9,000 from a part-time job. With this income, student loans, savings, and nontaxable scholarships, he is self-supporting. For the year, Brandi is emplo

> In the current year, Pelican, Inc., incurs $50,000 of nondeductible fines and penalties. Its depreciation expense is $245,000 for financial statement purposes and $310,000 for tax purposes. How is this information reported on Schedule M–3?

> Which of the following individuals are required to file a tax return for 2015? 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

> Bob and Carol have been in and out of marital counseling for the past few years. Early in 2015, they decide to separate. However, because they are barely able to get by on their current incomes, they cannot afford separate housing or the legal costs of a

> Morgan (age 45) is single and provides more than 50% of the sup- port of Rosalyn (a family friend), Flo (a niece, age 18), and Jerold (a nephew, age 18). Both Rosalyn and Flo live with Morgan, but Jerold (a French citizen) lives in Canada. Morgan earns a

> Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children who live with her. She also maintains the house- hold in which her parents live and furnished 60% of their support. Besides interest on City of Miami bond

> 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, while the daughter (Irene) holds various part-time jobs from which she earns $11,000. Walt