Question: Married taxpayers Otto and Ruth are both

> 1. Bob employs a maid to clean his house. He pays her $1,040 during the current year. What is the proper tax treatment of the Social Security and Medicare tax for the maid? a. Bob is not required to pay or withhold Social Security and Medicare taxes on t

> 1. Which of the following amounts paid by an employer to an employee is not subject to withholding? a. Salary b. Bonus c. Commissions d. Reimbursement of expenses under an accountable plan e. All of the above are subject to withholding 2. Abbe, age 56,

> 1. In 2016, Mary sells for $14,000 a machine used in her business. The property was purchased on May 1, 2014, at a cost of $13,000. Mary has claimed depreciation on the machine of $8,000. What is the amount and nature of Mary’s gain as a result of the sa

> 1. All of the following assets are capital assets, except: a. A personal automobile b. IBM stock c. A child’s bicycle d. Personal furniture e. Used car inventory held by a car dealer 2. Which of the following is a capital asset? a. Account receivable b.

> 1. Kevin purchased a house 20 years ago for $100,000 and he has always lived in the house. Three years ago Kevin married Karen, and she has lived in the house since their marriage. If they sell Kevin’s house in December 2016 for $425,000, what is their t

> 1. Assume that a taxpayer purchases a computer in 2016 that has an estimated useful life of 10 years. If the computer is used 100 percent for business and no election to expense was made, what is the MACRS recovery period that must be used for cost recov

> 1. E Corporation is a subchapter S corporation owned by three individuals with calendar year-ends. The corporation sells a sports drink as its principal product and has similar sales each month. What options does E Corporation have in choosing a tax year

> Indicate whether the following statements are true or false: ______Decreasing one’s tax liability through legal methods is called tax avoidance, while illegally reducing taxes is called tax evasion. ______In a “closed” transaction, all tax-significant ev

> For each of the following situations, indicate the amount of the penalty that could be imposed on the tax return preparer: a. A tax return preparer understates the taxpayer’s tax liability with a frivolous position and does not disclose the position. b.

> Indicate the date that the statute of limitations would run out on each of the following individual tax returns: a. A fraudulent 2016 tax return that was filed April 15, 2017. b. A 2016 tax return that was filed May 19, 2017. c. A 2016 tax return that wa

> Explain the use of the mid-quarter convention for MACRS depreciation:

> 7. Indicate whether the following statements are true or false: ________The tax law includes a penalty for writing a “bad” check in payment of the taxpayer’s tax liability. ________The statute of limitations for a tax return is normally 4 years. ________

> For each of the following situations, indicate the nature and amount of the penalty that could be imposed. Description of the Penalty Penalty Amount a. Larry is a tax protester and files his tax return in the name of“Mickey Mouse." b. Anne writes a

> Linda underpaid her taxes for the current year by $4,000 due to negligence. a. Calculate Linda’s accuracy-related penalty for negligence. b. Assume that the underpayment of taxes by Linda was determined to be fraudulent, and calculate the total amount of

> In the 2016 tax year, Michelle paid the following amounts relating to her 2014 tax return: Tax deficiency…………………………………………………$5,000 Negligence penalty…………………………………………...1,000 Interest………………………………………………………………500 Underpayment of estimated tax penalty…………..

> a. Wilson filed his individual tax return on the original due date, but failed to pay $700 in taxes that were due with the return. If Wilson pays the taxes exactly 2 months late, calculate the amount of his failure-to-pay penalty. b. Joan filed her indiv

> Indicate whether the following statements are true or false: _______A field audit by the IRS is an audit conducted at the IRS field office. _______A low Discriminant Function System score for a tax return increases the possibility that the return will be

> Indicate which of the following statements are true or false: _______The IRS is a division of the Treasury Department. _______The IRS has four major divisions. _______The IRS local offices process most individual tax returns. _______IRS Campus Processing

> Go to the IRS website (www.irs.gov) and print out a copy of the most recent Schedule K-1 of Form 1120S.

> Cypress Corporation has regular taxable income of $170,000 (assume annual gross receipts are greater than $7.5 million) and a regular tax liability of $49,550 for 2016. The corporation also has tax preference items amounting to $105,000. Calculate Cypres

> Grevilla Corporation is a manufacturing company. The corporation has accumulated earnings of $950,000, and it can establish reasonable needs for $400,000 of that amount. Calculate the amount of the accumulated earnings tax (if any) that Grevilla Corporat

> Give the MACRS depreciation life of the following assets: a. An automobile _____________________ b. Business furniture _____________________ c. A computer _____________________ d. Residential real estate _____________________ e. Commercial real estate __

> Karen, in forming a new corporation, transfers land to the corporation in exchange for 100 percent of the stock of the corporation. Karen’s basis in the land is $275,000, and the corporation assumes a liability on the property in the amount of $300,000.

> Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation. Guilda’s basis in her stock is $25,000. On July 31, 2016, Bill sells his stock, with a basis of $40,000, to Loraine for $50,000. For the 2016 tax year, Radiata Cor

> Cedar Corporation has an S corporation election in effect. During the 2016 calendar tax year, the corporation had ordinary taxable income of $200,000, and on January 15, 2016, the corporation paid dividends to shareholders in the amount of $120,000. How

> Mallory Corporation has a calendar year-end. The corporation has paid estimated taxes of $10,000 during 2016 but still owes an additional $5,000 for its 2016 tax year. a. When is the 2016 tax return due? b. If an automatic extension of time to file is re

> The Loquat Corporation has book net income of $50,000 for the current year. Included in this figure are the following items, which are reported on the corporation’s Schedule M-1, Reconciliation of Income (Loss) per Books with Income per Return. Federal

> Citradoria Corporation is a regular corporation that contributes $35,000 cash to qualified charitable organizations during the current tax year. The corporation has net operating income of $140,000, before deducting the contributions, and dividends brece

> Beech Corporation, an accrual basis taxpayer, was organized and began business on July 1 of the current calendar tax year. During the current year, the corporation incurred the following expenses: State fees for incorporation …………………………………………... $ 500 L

> Fisafolia Corporation has gross income from operations of $220,000 and operating expenses of $160,000 for the current year. The corporation also has $20,000 in dividends from publicly traded domestic corporations (ownership in all corporations was less t

> For its current tax year, Ilex Corporation has ordinary income of $240,000, a short-term capital loss of $60,000, and a long-term capital gain of $20,000. Calculate Ilex Corporation’s tax liability for the current year.

> Ulmus Corporation has $1,230,000 in taxable income for the current tax year. Calculate the corporation’s income tax liability for the current tax year.

> On May 8, 2016, Holly purchased a residential apartment building. The cost basis assigned to the building is $800,000. Holly also owns another residential apartment building that she purchased on October 15, 2016, with a cost basis of $500,000. a. Calcul

> Quince Corporation has taxable income of $450,000 for its calendar tax year. Calculate the corporation’s income tax liability for the year before tax credits.

> Describe one advantage and one disadvantage of doing business as an LLC.

> Van makes an investment in a partnership in 2016. Van’s capital contributions to the partnership consisted of $30,000 cash and a building with an adjusted basis of $70,000, subject to a nonrecourse liability (seller financing) of $20,000. a. Calculate th

> Louise owns 45 percent of a partnership, and her brother owns the remaining 55 percent interest. During the current tax year, Louise sold a building to the partnership for $160,000 to be used for the partnership’s office. She had held the building for 3

> Quince Interests is a partnership with a tax year that ends on September 30, 2016. During that year, Potter, a partner, received $3,000 per month as a guaranteed payment, and his share of partnership income after guaranteed payments was $23,000. For Octo

> Walter receives cash of $18,000 and land with a fair market value of $75,000 (adjusted basis of $50,000) in a current distribution. His basis in his partnership is $16,000. a. What amount of gain must Walter recognize as a result of the current distribut

> L&J Interests is a partnership with two equal partners, Linda and Joanne. The partnership has income of $75,000 for the year before guaranteed payments. Guaranteed payments of $45,000 are paid to Linda during the year. Calculate the amount of income that

> Go to the IRS website (www.irs.gov) and print pages 1 and 2 of Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc. Review the different elements of income which must be passed through to each partner and be reported as separate

> Wilson has a 40 percent interest in the assets and income of the CC&W Partnership, and the basis in his partnership interest is $45,000 at the beginning of 2016. During 2016, the partnership’s net loss is $60,000 and Wilson’s share of the loss is $24,000

> Jay contributes property with a fair market value of $16,000 and an adjusted basis of $5,000 to a partnership in exchange for an 8 percent partnership interest. a. Calculate the amount of gain recognized by Jay as a result of the transfer of the property

> Mike purchases a heavy-duty truck (5-year class recovery property) for his delivery service on April 30, 2016. The truck is not considered a passenger automobile for purposes of the listed property and luxury automobile limitations. The truck has a depre

> Larry and Jessica form the L&J Partnership. Larry contributes property with an adjusted basis of $70,000, a fair market value of $200,000, and subject to a liability of $80,000 in exchange for a 40 percent interest in the partnership. Jessica receives a

> Elaine’s original basis in the Hornbeam Partnership was $30,000. Her share of the taxable income from the partnership since she purchased the interest has been $90,000, and Elaine has received $80,000 in cash distributions from the partnership. Elaine di

> Nan contributes property with an adjusted basis of $60,000 to a partnership. The property has a fair market value of $75,000 on the date of the contribution. What is the partnership’s basis in the property contributed by Nan?

> Hal, Steve, and Lew form a partnership to operate a grocery store. For each of the following contributions by the partners, indicate (1) the amount of income or gain recognized, if any, by the partner, and (2) the partner’s basis in the partnership int

> Debbie and Alan open a web-based bookstore together. They have been friends for so long that they start their business on a handshake after discussing how they will share both work and profits or losses from the business. Have Debbie and Alan formed a re

> Ann hires a nanny to watch her two children while she works at a local hospital. She pays the 19-year-old nanny $165 per week for 46 weeks during the current year. a. What is the employer’s portion of Social Security and Medicare tax for the nanny that A

> Sally hires a maid to work in her home for $260 per month. The maid is 25 years old and not related to Sally. During 2016, the maid worked 10 months for Sally. a. What is the amount of Social Security tax Sally must pay as the maid’s em

> Thomas is an employer with one employee, Sarah. Sarah’s wages are $19,450, and the state unemployment tax rate is 5.4 percent. Calculate the following amounts for Thomas: a. FUTA tax before the state tax credit b. State unemployment tax c. FUTA tax aft

> Stewart Beauf is a self-employed surfboard maker in 2016. His Schedule C net income is $115,000 for the year. He also has a part-time job and earns $9,100 in wages subject to FICA taxes. Calculate Stewart’s self-employment tax for 2016 using Schedule SE.

> Is it possible to depreciate a residential rental building when it is actually increasing in value? Why?

> Fly-By-Night (P.O. Box 1234, Dallas, TX 75221, EIN 12-9876543) paid George Smith, an employee who lives at 432 Second Street, Garland, TX 75040, wages of $24,300. The income tax withholding amounted to $5,320 and the FICA tax was $1,858.95 ($1,506.60 for

> Philcon Corporation (P.O. Box 4563, Anchorage, AK 99508; EIN 12-3456789) paid Louise Chugach, an employee who lives at 5471 East Tudor Road, Anchorage, AK 99508, wages of $124,554 in 2016. The income tax withholding for the year amounted to $16,050.40, a

> For each of the following payments, indicate the form that should be used to report the payment: a. Interest of $400 paid by a bank b. Payment of $400 in dividends by a corporation to a shareholder c. Periodic payments from a retirement plan d. Salary as

> Jan has two jobs during 2016. One employer withheld and paid Social Security taxes on $70,000 of Jan’s salary, and the other employer withheld and paid Social Security taxes on $49,500 in salary paid to Jan. Calculate the amount of Jan’s overpayment of S

> Yolanda earns $123,000 in 2016. Calculate the FICA tax that must be paid by: Yolanda: Social Security Medicare Yolanda's Employer: Social Security Medicare Total FICA Tax $-

> Jenny earns $44,500 in 2016. Calculate the FICA tax that must be paid by: Jenny: Social Security Medicare Jenny's Employer: Social Security Medicare $. Total FICA Tax $.

> Go to the IRS website (www.irs.gov) and redo Problem 5 using the most recent interactive Form 1040-ES. Print out the completed Form 1040-ES.

> Alice West (Social Security number 785-23-9873) lives at 13234 Madison Street, Milwaukee, WI 53214, and is self-employed for 2016. She estimates her required annual estimated tax payment for 2016 to be $6,816. She had a $576 overpayment of last year&acir

> Big Bull restaurant employs twenty-three employees who receive tips. During the current year, Big Bull has $410,000 in gross revenues, and its employees do not report any tip income. In what ways may the restaurant allocate the tip income to the employee

> Sophie is a single taxpayer. For the first payroll period in October 2016, she is paid wages of $3,280.50 monthly. Sophie claims three allowances on her Form W-4. a. Use the percentage method to calculate the amount of Sophie’s withholding for a monthly

> Is land allowed to be depreciated? Why or why not?

> Ralph and Kathy Gump are married with one 20-year-old dependent child. Ralph earns a total of $39,000 and estimates their itemized deductions to be $16,000 for the year. Kathy is not employed. Use Form W-4 to determine the number of withholding allowance

> Phan Mai is single with two dependent children under age 17. Phan estimates her wages for the year will be $36,000, will have $5,700 of dependent care expenses, and her itemized deductions will be $11,000. Assuming Phan files as head of household, use Fo

> Go to the IRS website (www.irs.gov) and redo Problem 7 using the most recent Form 6252, Installment Sale Income. Print out the completed Form 6252.

> On July 1, 2016, Ted, age 73 and single, sells his personal residence of the last 30 years for $368,000. Ted’s basis in his residence is $42,000. The expenses associated with the sale of his home total $22,000. On December 15, 2016, Ted purchases and occ

> Larry Gaines, a single taxpayer, age 42, sells his personal residence on November 12, 2016, for $148,000. He lived in the house for 7 years. The expenses of the sale are $9,000, and he has made capital improvements of $7,000. Larry’s cost basis in his re

> Teresa’s manufacturing plant is destroyed by fire. The plant has an adjusted basis of $270,000, and Teresa receives insurance proceeds of $410,000 for the loss. Teresa reinvests $420,000 in a replacement plant. a. Calculate Teresa’s recognized gain if sh

> Carey exchanges real estate for other real estate in a qualifying like-kind exchange. Carey’s basis in the real estate given up is $120,000, and the property has a fair market value of $165,000. In exchange for her property, Carey receives real estate wi

> Rebecca has a $6,400 casualty loss, before any limitations, as a result of the complete destruction of personal-use property. She also receives $1,200 of insurance proceeds for the destruction of a second item of personal-use property which was damaged i

> An office machine used by Josie in her accounting business was completely destroyed by fire. The adjusted basis of the machine was $8,000 (original basis of $14,000 less accumulated depreciation of $6,000). The machine was not insured. Calculate the amou

> William sold Section 1245 property for $25,000 in 2016. The property cost $37,000 when it was purchased 5 years ago. The depreciation claimed on the property was $17,000. a. Calculate the adjusted basis of the property. b. Calculate the recomputed basis

> Amy is a calendar-year taxpayer reporting on the cash basis. Please indicate how she should treat the following items for 2016: a. She makes a deductible contribution to an IRA on April 15, 2017. b. She has made an election to accrue the increase in va

> In 2016, Michael has net short-term capital losses of $1,500, a net long-term capital loss of $27,000, and other ordinary taxable income of $45,000. a. Calculate the amount of Michael’s deduction for capital losses for 2016. b. Calculate the amount and n

> 8. Elvin, a single taxpayer 45 years of age, sells his residence in 2016. He receives $35,000 in cash, and the buyer assumes his $100,000 mortgage. Elvin also pays $8,100 in commissions and transfer costs. a. Calculate the amount realized on the sale. b.

> Steve Drake sells a rental house on January 1, 2016, and receives $120,000 cash and a note for $45,000 at 10 percent interest. The purchaser also assumes the mortgage on the property of $35,000. Steve’s original cost for the house was $

> Nadia Shalom has the following transactions during the year: Sale of office equipment on March 15 that cost $19,000 when purchased on July 1, 2014. Nadia has claimed $3,000 in depreciation and sells the asset for $13,000 with no selling costs. Sale of la

> Chrissy receives 200 shares of Chevron stock as a gift from her father. The stock cost her father $9,000 10 years ago and is worth $10,500 at the date of the gift. a. If the stock is sold for $12,500, calculate the amount of the gain or loss on the sale.

> Jocasta owns an apartment complex that she purchased 6 years ago for $750,000. Jocasta has made $60,000 of capital improvements on the complex, and her depreciation claimed on the building to date is $137,500. Calculate Jocasta’s adjusted basis in the bu

> Charu Khanna received a Form 1099-B showing the following stock transactions and basis during 2016 None of the stock is qualified small business stock. The stock basis was reported to the IRS. Calculate Charu’s net capital gain or loss

> During 2016, Tom sold Sears stock for $10,000. The stock was purchased 4 years ago for $13,000. Tom also sold Ford Motor Company bonds for $35,000. The bonds were purchased 2 months ago for $30,000. Home Depot stock, purchased 2 years ago for $1,000, was

> 1. Martin sells a stock investment for $26,000 on August 2, 2016. Martin’s adjusted basis in the stock is $15,000. a. If Martin acquired the stock on November 15, 2015, calculate the amount and the nature of the gain or loss. b. If Martin had acquired th

> JBC Corporation is owned 20 percent by John, 30 percent by Brian, 30 percent by Charlie, and 20 percent by Z Corporation. Z Corporation is owned 80 percent by John and 20 percent by an unrelated party. Brian and Charlie are brothers. Answer each of the f

> Geraldine is an accrual basis taxpayer who has the following transactions during the current calendar tax year: Accrued business income (except rent) …………………………………...$220,000 Accrued business expenses (except rent) …………………………………. 170,000 Rental income on

> Annie develops a successful tax practice. She sells the practice to her friend Carol for $54,000 and moves to Florida to retire. The tax practice has no assets except intangible benefits such as the goodwill and going-concern value Annie has developed ov

> Derek purchases a small business from Art on July 1, 2016. He paid the following amounts for the business: Fixed assets ………………………………. $220,000 Goodwill …………………………………... 50,000 Covenant not to compete …………... 55,000 Total ………………………………………. $325,00

> Deborah purchases a new $32,000 car in 2016 to use exclusively in her business. If Deborah does not elect to expense but does take bonus depreciation in 2016 and holds the car until it is fully depreciated, how many years will this take? Please show your

> Tom has a successful business with $100,000 of taxable income before the election to expense in 2016. He purchases one new asset in 2016, a new machine which is 7-year MACRS property and costs $25,000. If you are Tom’s tax advisor, how would you advise T

> Go to the IRS website (www.irs.gov) and assuming bonus depreciation is used, redo Problem 15, using the most recent interactive Form 4562, Depreciation and Amortization. Print out the completed Form 4562.

> During 2016, Palo Fiero purchases the following property for use in his calendar year-end manufacturing business: Palo uses the accelerated depreciation method under MACRS, if available, and does not make the election to expense or take bonus depreciat

> On September 14, 2016, Jay purchased a passenger automobile that is used 75 percent in his accounting business. The automobile has a basis for depreciation purposes of $43,000, and Jay uses the accelerated method under MACRS. Jay does not elect to expens

> On February 2, 2016, Alexandra purchases a personal computer for her home. The computer cost $2,800. Alexandra uses the computer 80 percent of the time in her accounting business, and the remaining 20 percent of the time for various personal uses. Calcul

> During 2016, William purchases the following capital assets for use in his catering business: New passenger automobile (September 30) ………. $21,500 Baking equipment (June 30) …………………………………6,500 Assume that William decides to use the election to expense

> The Au Natural Clothing Factory has changed its year-end from a calendar year-end to March 31, with permission from the IRS. The income for its short period from January 1 to March 31 is $24,000. Calculate the tax for this short period.

> Rocky Jackson, a friend of yours, just started a new job. He is attempting to fill out Form W-4 and has asked for your help. He would like to receive a large refund when he files his return and would therefore like to claim as few allowances as possible.

> Charlie’s Green Lawn Care is a cash basis taxpayer. Charlie Adame, the sole proprietor, is considering delaying some of his December 2016 customer billings for lawn care into the next year. In addition, he is thinking about paying some of the bills in la

> 1. Jim has a house payment of $2,000 per month of which $1,700 is deductible interest and real estate taxes with the remaining $300 representing a repayment of the principal balance of the note. Jim’s marginal tax rate is 30 percent. What is Jim’s after-