Ken is a self-employed architect in a small firm with four employees: himself, his office assistant, and two drafters, all of whom have worked for Ken full-time for the last four years. The office assistant earns $30,000 per year and each drafter earns $40,000. Ken’s net earnings from self-employment (after deducting all expenses and one-half of self-employment taxes) are $310,000. Ken is considering whether to establish an SEP plan and has a few questions. a) Is he eligible to establish an SEP plan? b) Is he required to cover his employees under the plan? Why or why not? c) If his employees must be covered, what is the maximum amount that can be contributed on their behalf? d) If the employees are not covered, what is the maximum amount Ken can contribute for himself? e) If Ken is required to contribute for his employees and chooses to contribute the maximum amount, what is the maximum amount Ken can contribute for himself?
> What type of compensation is subject to employer withholding?
> What is a capital gain distribution, and how is it taxed?
> Who completes Form W-4, and what is its purpose? What information does it provide to employers?
> Why are charitable contributions stated separately on the K-1 but not deducted on a partnership return?
> Why are the income and losses (or expenses) separately stated to the partner, shareholder or owner, and on what form(s) are they reported?
> Two kinds of education tax credits are available. Name them and briefly discuss the criteria necessary to claim each of the credits.
> How can the gain from the sale of property be characterized? Why is it important to correctly characterize the gain on the sale of property?
> Explain the two instances in which taxpayers may choose to deduct foreign taxes as an itemized deduction rather than as a credit.
> Would your answer to Question 10 change if Jake also rented his house (at fair market value) to his brother and his family for 7 days? Data from Question 10: Jake has a vacation rental house at the beach. During the tax year, he and his immediate fami
> Does the length of time a capital asset is held affect the gain or loss on the sale of the asset? Explain.
> Jake has a vacation rental house at the beach. During the tax year, he and his immediate family used the house for 12 days for a personal vacation. Jake and his son spent two more weekends (4 days) repairing steps from the property to the beach. The b
> A taxpayer has $2,000 of qualified employment-related expenses paid on behalf of one qualifying child. Determine the maximum and minimum amount of child and dependent care tax credit available to the taxpayer and explain the circumstances in which the m
> When must employers make payroll tax deposits?
> What are the tip reporting requirements for large food and beverage establishments?
> When are employees required to report tips to their employer? Are tips subject to the same withholding requirements as regular salary?
> In addition to federal tax withholding, what other taxes are employers required to withhold from an employee’s paycheck? How are the calculations made?
> If a taxpayer makes $30,000 per year, will the annual withholding differ depending on whether the taxpayer is paid weekly, semimonthly, or monthly? Explain.
> What is meant by the terms realized gain (loss) and recognized gain (loss) as they apply to the sale of assets by a taxpayer?
> How are household payroll taxes reported? When are they due?
> What is the FUTA tax, and at what percentage is it assessed?
> Why are self-employed taxpayers allowed a deduction for self-employment tax in determining adjusted gross income (AGI)?
> The amount of the premium tax credit is the lesser of what two factors?
> How are gains (losses) from the sale of property acquired from a decedent taxed?
> What are supplemental wage payments?
> What is the maximum annual contribution that can be made to a Coverdell Education Savings Account? Can an eligible beneficiary have more than one CESA?
> How often must employers report payroll taxes to the IRS? What form must the employer file?
> Jerome is single and cannot be claimed by anyone as a dependent. He is a student at a local university enrolled full-time in an MBA program. His tuition bill was $5,000. He paid the bill by withdrawing $2,000 from his savings account and borrowing the
> What is the deadline by which contributions must be made to a traditional IRA to obtain a tax deduction in the current year?
> How are the terms basis, adjusted basis, and fair market value defined as they apply to the calculation of gains and losses?
> What are the two components of the self-employment tax? Is either component limited?
> What is the maximum annual contribution that can be made to an SEP, and how is the maximum calculated?
> Briefly discuss the conditions necessary for a taxpayer to be permitted to make tax-deductible contributions to a simplified employee pension (SEP).
> What is the maximum annual contribution that can be made to a Keogh plan, and how is the maximum calculated?
> Distinguish between travel and transportation expenses.
> Discuss the concept of listed property.
> Briefly discuss the conditions necessary for a taxpayer to be permitted to make tax-deductible contributions to a Keogh plan.
> When calculating depreciation for personal property (assuming the half-year convention) using the IRS depreciation tables, does the taxpayer need to multiply the first year table depreciation percentage by one-half? What about in the year of disposal, a
> What is a depreciation convention? What conventions are available under MACRS?
> Discuss the difference between personal property and real property. Give examples of each.
> Discuss the word basis in relation to the financial accounting term book value. What is meant by the term adjusted basis?
> What are the two broad categories of retirement plans? Give some examples of each.
> For purposes of the tax credit for child and dependent care expenses, explain the limitations concerning the amount of qualified expenses that can be used to calculate the credit.
> What is the “rule of thumb” noted in the text pertaining to the taxability of retirement plan distributions?
> What is the purpose of a retirement plan? Why does the government provide tax benefits to retirement plans?
> What are the differences between a traditional IRA and a Roth IRA regarding the deductibility of contributions, taxability of IRA earnings, and taxability of distributions?
> Lance is single and has a traditional IRA into which he has made deductible contributions for several years. This year he changed employers and is now an active participant in his employer’s pension plan. His AGI is $95,000. He wants to make a nondedu
> April, who is under age 50, is considering investing in tax-free state government bonds or making a permitted tax-deductible contribution to a traditional IRA. Assume that the amounts are the same for either alternative and that she can reinvest the int
> Under what circumstances is it advantageous for a taxpayer to make a nondeductible contribution to a traditional IRA rather than a contribution to a Roth IRA?
> Use the same information as in Problem 52. Answer the questions indicated, assuming that Ken is considering a SIMPLE plan. Data from question 52: Ken is a self-employed architect in a small firm with four employees: himself, his office assistant, and
> Determine the maximum contribution that can be made to a Keogh plan in each of the following cases. In all instances, the individual is self-employed, and the self-employment tax reduction has already been taken. a) Self-employment income of $46,000. b
> Cornell Company is considering the establishment of a pension plan. The proposed plan has the following features: Contributions for employees earning less than $100,000 will be based on 3% of salary, while contributions for those earning over $100,000
> Determine the tax-free amount of the monthly payment in each of the following instances. a. Person A is age 57 and purchased an annuity for $82,000. The annuity pays $600 per month for life. b. Person B is 73 and purchased an annuity for $80,000. Th
> Pablo and his wife Bernita are both age 45. Their combined AGI is $90,000. Neither is a participant in an employer-sponsored retirement plan. They have been contributing to a traditional IRA for many years and have built up an IRA balance of $120,000.
> Using the simplified method, determine the tax-free amount of the following distributions from a qualified pension plan. Contributions, if any, are made with previously-taxed dollars. a. Person A, age 59, made no contributions to the pension plan and w
> Will, who is single and under age 50, is employed as a full-time tax accountant at a local manufacturing company where he earns $73,000 per year. He participates in a pension plan through his employer. Will also operates a small tax practice in his spa
> Jenna paid foreign income tax of $1,326 on foreign income of $8,112. Her worldwide taxable income was $91,400, and her U.S. tax liability was $23,000. What is the amount of foreign tax credit (FTC) allowed? What would be the allowed FTC if Jenna had p
> Use the information in Problem 51. What education tax credits are available if Walt and Deloris report modified AGI of $115,300? Does your answer change if Tiffany is taking one class a semester (is less than a half-time student) and not taking classes
> Walt and Deloris have two dependent children, Bill and Tiffany. Bill is a freshman at State University and Tiffany is working on her graduate degree. The couple paid qualified expenses of $3,900 for Bill (who is a half-time student) and $7,800 for Tiff
> In each of the following cases, certain qualifying education expenses were paid during the tax year for individuals who were the taxpayer, spouse, or dependent. The taxpayer has a tax liability and no other credits. Determine the amount of American opp
> Assuming that an AGI limitation does not apply, what amounts of credit for the elderly or the disabled would be permitted in each of the instances in Problem 48? Data from Question 48: What is the AGI limit above which each the following taxpayers wou
> Adrienne is a single mother with a 6-year-old daughter who lived with her during the entire year. Adrienne paid $2,900 in child care expenses so that she would be able to work. Of this amount, $500 was paid to Adrienne’s mother whom Adrienne cannot cla
> Casper used the following assets in his Schedule C trade or business in the tax year 2017: Asset Date Purchased Date Sold Business Use Percentage Cost Computer 1 03/12/14 100% $3,000 Computer 2 05/05/14 05/15/17 100% $2,500 Print
> Niles and Marsha adopted an infant boy (a U.S. citizen). They paid $14,500 in 2016 for adoption-related expenses. The adoption was finalized in early 2017. Marsha received $3,000 of employer-provided adoption benefits. For question (a) assume that any
> Eric, who is single, participates in an activity that is appropriately classified as a hobby. The activity produces the following revenue and expenses: Revenue………………………………………………………..$12,000 Property taxes …………………………………………………..2,000 Materials and suppli
> Rebecca is a doctor with an AGI of $125,000 before consideration of income or loss from her dog breeding business. Her home is on 15 acres, 10 of which she uses to house the animals and provide them with ample space to play and exercise. Her records sh
> Derrick owns a farm in eastern North Carolina. A hurricane hit the area and destroyed a farm building and some farm equipment and damaged a barn. Item Adjusted Basis FMV before Damage FMV after Damage Insurance Proceeds Building $85,000 $115,
> Ramon received a gift of stock from his uncle. The basis of the stock to his uncle was $25,000, and it had a FMV of $18,000 at the date of the gift. The donor held the property for more than one year. Complete the following chart under the independent
> Jose purchased a vehicle for business and personal use. In 2017 he used the vehicle 18,000 miles (80%) for business and calculated his vehicle expenses using the standard mileage rate (mileage was incurred ratably throughout the year). He paid $1,400 in
> In 2015 Jessica bought a new heavy truck for $45,000 to use 80% for her sole proprietorship. Total miles driven include 12,000 in 2015, 14,500 in 2016, and 13,000 in 2017. a. If Jessica uses the standard mileage method, how much may she deduct on her 2
> During 2017, Roberto sold 830 shares of Casual Investor Mutual fund for $8.875 per share. The shares were purchased on the following dates: Date Shares Price May 31, 2013 400 $9.375 September 18, 2014 225 $8.500 October 21, 2014 425 $
> Lois purchased the following blocks of Westgate Stock: Date Shares Price June 12, 2014 1,000 $4.225 October 21, 2014 2,000 $4.775 December 18, 2016 1,500 $5.500 Lois sold 1,600 shares of the stock on November 20, 2017 for $5.00 per
> Tim and Martha paid $7,900 in qualified employment-related expenses for their three young children who live with them in their household. Martha received $1,800 of dependent care assistance from her employer, which was properly excluded from gross incom
> Determine the amount of child tax credit in each of the following cases. a) A single parent with modified AGI of $43,400 and two children. b) A single parent with modified AGI of $77,058 and three children. c) A married couple with modified AGI of $107,
> Janet owns a home at the lake. She incurs the following expenses: Mortgage interest…………………………..$1,300 Property taxes ……………………………………800 Insurance……………………………….………1,500 Utilities……………………………………………1,800 Repairs………………………………………………300 Depreciation…………………………………
> Mabel, Loretta, and Margaret are equal partners in a local restaurant. The restaurant reports the following items for the current year: Revenue……………………………………………$600,000 Business expenses………………………………. 310,000 Investment expenses ……………………………150,000 Short
> Randolph and Tammy own a second home. They spent 45 days there and rented it for 88 days at $150 per day during the year. The total costs relating to the home include the following: Mortgage interest………………………. $4,500 Property taxes ………………………………. 1,200
> Betsy acquired a new network system on June 5, 2017 (5-year class property) for $75,000. She expects taxable income from the business will always be about $175,000 without regard to the §179 election. Betsy will elect §179 expensing. She also acquired
> Matt and Marie own a vacation home at the beach. During the year, they rented the house for 42 days (6 weeks) at $890 per week and used it for personal use for 58 days. The total costs of maintaining the home are as follows: Mortgage interest…………………….
> In 2015, Gerald loaned Main Street Bakery $55,000. In 2016, he learned that he would probably receive only $6,400 of the loan. In 2017, Gerald received $3,000 in final settlement of the loan. Calculate Gerald’s possible deductions with respect to the
> What is the AGI limit above which each the following taxpayers would not be eligible to receive a credit for the elderly or the disabled? a) A single taxpayer eligible for the credit who receives $1,000 of nontaxable social security benefits. b) Taxpaye
> Ramone is a tax attorney and he owns an office building that he rents for $8,500/month. He is responsible for paying all taxes and expenses relating to the building’s operation and maintenance. Is Ramone engaged in the trade or business of renting real
> Kelly is a self-employed tax attorney whose practice primarily involves tax planning. During the year, she attended a three-day seminar regarding new changes to the tax law. She incurred the following expenses: Lodging……………………………. $400 Meals………………………………
> Lauprechta Inc. has the following employees on payroll: Semimonthly Withholding Marital Payroll Allowances Status Naila $5,800 4 Married Wilfred $5,000 3 Married Byron $3,200 1
> Jacob Turner hired Jen Hatcher as a housekeeper starting on January 2 at $750 per month. Jacob does not withhold any federal taxes. Assume that Jen is not a housekeeper for anyone else. Assume Jacob paid $2,250 in wages for the fourth quarter of 2017.
> CFG Company has the following employees: Wages Paid Eddie……………………………………. $12,000 Melanie……………………………………. 6,000 Shelly………………………………………22,000 CFG receives the m
> Baker Company is trying to determine how often it needs to deposit payroll taxes for calendar year 2017. The company made the following quarterly payroll tax deposits during the last two years: Quarter beginning January 1, 2015…………….……. $ 10,000 Quarter
> Roberto’s salary is $129,600 in 2017. Roberto is paid on a semimonthly basis, is single, and claims one allowance a. What is Roberto’s federal tax withholding per pay period? b. What is Roberto’s FICA withholding per pay period before he reaches the soc
> Henry, who earned $93,840 during 2017, is paid on a monthly basis, is married, and claims four allowances. a. What is Henry’s federal tax withholding for each pay period? b. What is Henry’s FICA withholding for each pay period?
> Lisa earns $65,000 per year. She is married and claims three allowances. a. If she is paid weekly, what is her withholding per paycheck? b. If she is paid monthly, what is her withholding per paycheck? c. If she is paid biweekly, what is her withhold
> Martin is married and claims four exemptions on his W-4. What is his federal income tax withholding under the following conditions? a. Martin is paid semimonthly, and his gross pay is $3,600 per paycheck. b. Martin is paid monthly, and his gross pay is
> Allison is paid $1,325 per week. What is the amount of federal income tax withheld from Allison’s paycheck under the following conditions? a. Allison is single and claims two withholding allowances b. Allison is married and claims two withholding al
> Under which of the following situations would a taxpayer most likely take the foreign taxes paid as an itemized deduction rather than as a foreign tax credit? a. The foreign tax paid was less than 15%. b. The foreign tax paid was to a European country.
> Michael paid $3,350 in foreign income taxes to Argentina. His total worldwide income was $75,000, which included $9,800 of income from Argentina. His U.S. tax liability is $18,750. How much can Michael claim as a foreign tax credit? a. $2,450. b. $2,
> Joyce has $82,000 total worldwide income, which includes $11,000 of taxable income from China. She paid $2,200 in foreign income taxes to China, and her U.S. tax liability is $21,610. Joyce’s foreign tax credit is: a. $0. b. $2,200. c. $2,899. d. $11,
> Jamison is a single dad with two dependent children, Zoey, age 7 and Conner, age 3. He has an AGI of $69,000 and paid $4,300 to a qualified day care center for the two children. What amount can Jamison receive for the child and dependent care credit?
> Sean and Jenny own a home in Boulder City, Nevada, near Lake Mead. During the year, they rented the house for 40 days for $3,000 and used it for personal use for 18 days. The house remained vacant for the remainder of the year. The expenses for the ho
> Darren and Nikki own a cabin in Mammoth, California. During the year, they rented it for 45 days for $9,000 and used it for 12 days for personal use. The house remained vacant for the remainder of the year. The expenses for the house included $8,000 i
> Which of the following items is not deductible as rental expense? a. Advertising. b. Repairs and maintenance. c. New bathroom addition. d. Insurance.
> Assume the same facts as Question 22, except that James rented the Lake Tahoe home for 40 days for $4,600. What is his net income or loss from the rental of his home (without considering the passive loss limitation)? Use the IRS method for allocation of
> James owns a home in Lake Tahoe, Nevada, that he rented for $1,600 for two weeks during the summer. He lived there for a total of 120 days, and the rest of the year the house was vacant. The expenses for the home included $6,000 in mortgage interest, $9
