Martin Galloway, the sole proprietor of a consulting business, has gross receipts of $45,000 in 2017. His address is: 1223 Fairfield Street, Westfield, New Jersey and his SSN is 158-68-7799. Expenses paid by his business are Advertising……………………………………………………………$ 500 Supplies………………………………………………………………..2,900 Taxes and licenses………………………………………………….500 Travel (other than meals)……………………………………….600 Meals and entertainment……………………………………….400 Health insurance premiums (for Martin)…………….1,400 Individual retirement account contribution…………..2,500 During the year, Martin drives his car a total of 15,000 miles (700 business miles and 550 personal miles per month). He paid $100 for business-related parking and tolls. He paid $120 in fines for speeding tickets when he was late for appointments with clients. Martin’s office is located in his home. His office occupies 500 of the 2,000 square feet in his home. His total (unallocated) expenses for his home are Mortgage interest……………………………………..$6,000 Property taxes…………………………………………….1,700 Insurance……………………………………………………..700 Repairs and maintenance……………………………..300 Utilities………………………………………………………1,600 Depreciation for the business portion of his home is $1,364. a. What is Martin’s net income (loss) from his business? b. How much self-employment tax must Martin pay? c. Based on this information, are there any other deductions that Martin can claim on his individual tax return other than those reported on his Schedule C? d. How would your answers to the above items change if Martin elects to use the simplified method for home office expenses?
> Locate and read Greg McIntosh, TC Memo 2001-144, 81 TCM 1772, RIA TC Memo 2001144 (6/19/2001). Answer the following questions. a. What requirements must be met for a taxpayer to recover litigation costs from the IRS? b. Was the taxpayer in this case ab
> Fred Fisher is a licensed scuba diver who lives in Key Largo. He is employed full-time as an engineer. Five years ago he had been employed as a professional diver for a salvage company. While working for the salvage company, he became interested in marin
> Your clients, Sonny and his wife, Honey, believe in worshiping Ta-Ra, the Sun God. To practice their religious beliefs, they take a weeklong trip to Hawaii to worship Ta-Ra. The cost of this pilgrimage (including airfare, hotel, and meals) is $2,800. Son
> Last year your client, Barney Bumluck, worked part-time for Timely Tax Return Preparation Service. Barney was promised an hourly wage plus a commission. He worked under this arrangement from early February until April 15. His accrued pay amounted to $900
> Your client, Ms. I. M. Gorgeous, is an aspiring actress. She has managed to earn a living doing television commercials but was unable to get the acting parts she really wanted. She decided to have botox injections in her forehead and collagen enhancement
> Samantha has been unemployed for some time and is very short of money. She learned that the local blood bank has a severe shortage of her type of blood and is therefore willing to pay $120 for each blood donation. Samantha gives blood twice a week for 12
> Thomas ran for Congress, raising $2 million for his campaign. Six months after losing the election, auditors discovered that Thomas kept $160,000 of the campaign funds and used the money to purchase a vacation home. What are the tax consequences for this
> Gamma Corporation, a calendar-year accrual-basis taxpayer, operates department stores. Alpha Corporation and Beta Corporation are wholly-owned domestic subsidiaries of Gamma Corporation and file a consolidated federal tax return under Gamma Corporation’s
> Ben is the chief executive officer of a restaurant chain based in Maine. Ben began the business 15 years ago and it has grown into a multimillion-dollar company, franchising restaurants all over the country. Ben has a new interest, however, in horse bree
> Briefly explain Adam Smith’s four canons of taxation.
> Gary Sanders owns his own real estate business. He has a reputation within the community for honesty and integrity and believes that this is one of the reasons his firm has been so successful. Gary was a 30 percent shareholder in an unsuccessful fast-foo
> Jennifer, age 40, has accumulated $40,000 in her traditional IRA. She would like to withdraw $22,000 from her IRA to pay for her daughter’s college expenses. She plans to use $15,000 for tuition and $7,000 for room and board. Write a letter to Jennifer s
> Robert, age 35, has accumulated $36,000 in his traditional IRA. He recently married and would like to withdraw $25,000 from his IRA for a down payment on his first house. Write a letter to Robert stating the tax implications of his proposed withdrawal.
> McGuire Corporation is planning to acquire a corporate jet to increase the efficiency and security of its executives who will use the jet for both business trips and personal vacations. McGuire Corporation wants to know how it should determine the amount
> Martin Martindale, the 40-year-old founder and president of Martindale Corporation (an accrual-basis, calendar-year C corporation), owns 60 percent of the stock and receives a salary of $600,000. Four unrelated shareholders own the rest of the stock equa
> Two years ago, Micro Corporation granted Alisa, their General Manager, 20,000 incentive stock options with an exercise price of $15 per share. The stock currently trades at $40 per share, but Alisa expects its price to continue to increase. She wants to
> Eileen files as head of household and earns a salary of $75,000. She has a 4-year-old dependent daughter for whom she pays $5,000 in annual day care expenses so that she can work. Eileen’s employer offers a dependent care flexible spending arrangement in
> Sharon has not worked outside the home since her first child was born five years ago and the younger of her two children is now three. She thinks they are old enough to go to a day care center so she can return to work. Sharon received two job offers. Ma
> Laura and Bryan’s daughter, Lillian, starts college in a few months. What tax issues should they consider when they pay for Lillian’s college tuition and related expenses.
> Martin, a single man, contributes a painting to an art museum in the current year. The museum is thrilled to get the painting because it fits its Impressionist collection. Martin purchased the painting 10 years ago for $50,000. The painting is currently
> What guidelines are provided by the Statement on Standards for Tax Services No. 3 regarding a CPA’s reliance on information supplied by the client for use in preparing the client’s tax return?
> What Constitutional Amendment allowed implementation of an income tax? In what year was it ratified?
> Manuel plans to make a significant contribution to his favorite charity with one of the following assets. Which asset would you recommend Manuel contribute and why? a. Stock acquired five years ago at a cost of $13,000. The current fair market value is
> Larry wants to purchase a new car for personal use. He anticipates financing $40,000 of the purchase price. The car dealer is offering a special 3.5 percent interest rate on new cars. Alternatively, Larry could use a home equity loan with a 5 percent int
> Lauren is single, age 60, and has an annual salary of $68,000. She paid off her mortgage in December 2016 but expects that her annual real estate taxes will continue to be approximately $5,800. Lauren contributes $2,500 each year to her favorite qualifie
> John has a vacation condo in the Florida Keys that he rented out for two weeks in December for $250 a day. John has used this vacation home himself for a total of three weeks during the year. His total (unallocated) expenses for the condo are Taxes……………
> Ken, owner of Kendrick Corporation, needs to send an employee on a temporary assignment at a plant in another state. He can either send one employee for 18-months or two employees for 9-months each. Kendrick Corporation will pay for all the meal and lodg
> Bob lives in Atlanta and needs to set up three days of business meetings with customers in San Francisco. While he is in California, he would like to spend two days sightseeing in the wine country. Bob’s customers are willing to meet any weekday with him
> Jorge, a single individual, agrees to accept an assignment in Saudi Arabia, a country that imposes no income tax on compensation, beginning on January 1. Jorge will be paid his normal monthly salary of $5,000, plus an additional $1,400 per month for each
> Robert, age 55, plans to retire when he reaches age 65. He is not currently an active participant in any qualified retirement plan. His budget will allow him to contribute no more than $3,000 of his income before taxes to either a traditional IRA or a Ro
> Carol has recently incorporated her sole proprietorship and is considering making an S election. The corporation has $200,000 of gross revenue and expenses of $75,000 before Carol’s salary. She plans to take a gross salary of $60,000 from the business an
> Jeremy is setting up a service business. He can either operate the business as a sole proprietorship or he can incorporate as a regular C corporation. He expects that the business will have gross income of $80,000 in the first year with expenses of $12,0
> What basic tax rates apply to the ordinary income, dividend income, and interest income of an individual? What are they for a corporation?
> John and Martha are planning to be married. Both are professionals each with taxable incomes of $89,700 annually. They are deciding on a wedding date. They have two dates to choose from: December 14, 2017, or January 11, 2018. If they marry on December 1
> Palace Company (an accrual-basis taxpayer) is writing the lease agreements for its new apartment complex, Palace Apartments, which will rent for a minimum of $2,000 per month. Palace wants tenants to pay $6,000 when they sign the lease and is considering
> Robert plans to start a new business that he believes will have steady growth in profits for the next 15 years. He needs to select a method of accounting to use: cash or accrual. He would like to select the method that will provide the higher net present
> Kevin and Elizabeth are negotiating a divorce settlement. Kevin is in the 33 percent marginal tax bracket and Elizabeth is in the 15 percent marginal tax bracket. Kevin has offered to pay Elizabeth $15,000 each year for 10 years; payments would cease if
> Sandra, a single taxpayer in the 39.6 percent marginal tax bracket, has $60,000 she can invest in either corporate bonds with a stated interest rate of 9 percent or general revenue bonds issued by her municipality with a stated interest rate of 6 percent
> Marlin Corporation must decide between two mutually exclusive projects because it lacks sufficient personnel to complete both projects. Each project takes two years to complete and the project selected will be Marlin’s only source of taxable income for t
> The manager at Striker Corporation can hire either Ken, a marketing student, who will do research on a marketing plan, or Lisa, a tax student, who will research tax strategies to reduce corporate taxes. If she hires Ken, his wages and benefits will total
> Debbie owns investment land that she purchased 10 years ago for $12,000. The land consists of two adjoining lots recently appraised at $80,000. She needs $40,000 cash for another investment opportunity and considers two alternatives: (1) sell half of the
> Norman considers the purchase of some investment land from his neighbor, Robin, a high school math teacher. Robin purchased the land 10 years ago for $6,000. They have agreed on payments of $800 every month for the next three years for a total of $28,800
> Richard plans to invest $100,000 for a 50 percent interest in a small business. His friend, Jack, will also invest $100,000 for the remaining 50 percent interest. They expect to generate a 10 percent before-tax return on their investment the first year.
> Differentiate a progressive tax system from a proportional and a regressive system and give examples of each.
> Jessica plans to invest $150,000 in a second business. She expects to generate a 12 percent before-tax return on her investment the first year. Her marginal tax rate is 25 percent due to the income from her other business. She needs to decide whether to
> William, an employee for Williamson Corporation, receives an annual salary of $120,000 and is in the 28 percent marginal tax bracket. He is eligible to contribute to Williamson’s 401(k) plan and could contribute the pretax amount of $12,000. Alternativel
> Maria, age 42, just resigned from Bygone Corporation to accept a new job with Future, Inc. Bygone informed Maria that she has a $38,000 balance in its qualified retirement plan and wants to know if she plans to roll over this balance into another plan or
> Global Corporation is looking for a new CEO. The board of directors selected Miguel as the top candidate. During negotiations, Miguel indicated he wanted a $2 million salary in addition to the stock-based compensation the board was offering. Although thi
> Melinda has been offered two competing employment contracts for the next two years. Argus Corporation will pay her a $75,000 salary in both years 1 and 2. Dynamic Corporation will pay Melinda a $100,000 salary in year 1 and a $49,000 salary in year 2. Me
> Barley Corporation used the FIFO method for inventory valuation when it began operations because this reflected the true physical flow of inventory. Its inventory under FIFO is valued at $375,000 at the end of its first year of operations. If Barley inst
> Refer to the information in problem 42 for Arnold Corporation. a. Identify which of Arnold Corporation’s book/tax differences result in a deferred tax asset or a deferred tax liability. b. Prepare the journal entry to record the federal tax expense and
> Arnold Corporation (a calendar-year, accrual-basis taxpayer) reported $500,000 pre-tax income on its financial statements for the year. In examining its records, you find the following: • $3,000 of interest income from municipal bonds • $200 of expense
> Maxwell Corporation has income per books before tax of $400,000. Included in the income per books is $8,000 interest income from tax-exempt municipal bonds. In computing income per books, Maxwell deducted $22,000 for meals and entertainment expenses, $3,
> Over what ranges of taxable income in 2017 will the total income tax liability for two persons with equal incomes who file as single individuals equal their income tax liability if they file jointly as a married couple?
> Neil owns a ski lodge in Aspen. His use of this lodge varies from year to year. The annual expenses for the lodge are as follows: Mortgage interest………………………………………$24,000 Property taxes………………………………………………12,000 Snow removal……………………………………………….1,000 Yard mai
> Teresa is an accomplished actress. During the summer, she rented a vacant store to stage productions of four plays, using the local townspeople as actors and stagehands. She sold $24,000 of tickets to the various plays. Her expenses included $10,000 for
> Maureen operates a cosmetics sales business from her home. She uses 400 of 1,600 square feet of the home as an office for the entire year. Her income before her home office deduction is $3,400 and unapportioned expenses for the home are as follows: Mortg
> Jim, the owner of a tabloid magazine, is sued by an actor for libel and pays $15,000 in legal fees. Jim is found guilty. Jim also received many parking tickets while attending various business meetings in areas where legal parking spaces are extremely di
> Maria earns $50,000 from consulting contracts during the year. She collects only $48,000 from her clients and expects the $2,000 will remain uncollectible. a. If Maria’s business uses accrual basis, what is her gross income for the year and how much can
> Tim accepts a temporary assignment that is 500 miles away from his office. The assignment is expected to last 7 months. Tim spends $7,000 for lodging and transportation and $3,000 for meals during these 7 months. At the end of the 7 months, Tim is notifi
> Mark flew from Baltimore to Phoenix on business. He spent four days on business and visited friends for two days before returning home. He stayed at a hotel for the four business days but he stayed at his friend’s home the last two days. He paid the foll
> In January, Marco incurs $2,800 in expenses traveling to San Diego to investigate the feasibility of acquiring a new business. He acquires the business and on March 1 forms a new corporation, Marco Enterprises, Inc. and pays $6,000 for organization costs
> Foster Corporation, a cash-basis taxpayer, borrowed $100,000 on January 1, year 1, but received only $98,000. The loan matures in 10 years with the $100,000 principal due on that date. Interest of $10,000 is payable on January 1 of each year beginning Ja
> When Kelley couldn’t make several monthly payments on a business loan, her brother Mike made three of the monthly payments of $700 each, a total of $2,100 ($1,950 for interest expense and $150 for principal) for Kelley’s loan. Kelley made the other nine
> Distinguish tax planning from tax compliance.
> Marco and Lisa are married and file a joint tax return. Lisa has salary income of $260,000 and Marco has salary income of $400,000. They also have the following items of investment income: $60,000 net long-term capital gain on sale of stock, $8,000 divid
> Linda received $90,000 in salary income for 2017. She has no dependents. Determine her income tax liability under each of the following independent situations: a. She files as a single individual. b. She is married and files a joint return with her spo
> Mark and Patricia report adjusted gross income of $380,500 and itemized deductions of $64,000 for the interest on their home acquisition mortgage (principal amount of $890,000), taxes, and charitable contributions. They file a joint income tax return and
> Jessica and Jason are married, file a joint return, and have 4 dependent children. Calculate their 2017 personal and dependency deductions for each of the following independent situations: a. Their AGI is $275,000. b. Their AGI is $375,000. c. Their A
> What is the total deduction for personal and dependency exemptions for the following taxpayers in 2017 if their AGI is $350,500? a. Married filing jointly with three dependents b. Single with no dependents
> Mario and Kaitlin are married and file a joint tax return. They have adjusted gross income of $385,000 that includes $4,700 of investment income ($3,000 short-term capital gains and $1,700 of corporate bond interest). They paid the following expenses for
> Arnold is a single individual and has adjusted gross income of $65,000 in the current year. Arnold donates the following items to his favorite qualified charities: a. $5,000 cash to the athletic department booster club at State University. This contribu
> Jennifer and Jason Greco are married and file a joint tax return. Their two dependent children (Jim, age 14 and Jessica, age 16); both live at home. The Grecos have the following income and expenses: Income: Jennifer’s salary…………………………………………………..$120,0
> Kelly Martin is divorced; her child, Barbara, lives with her and is her dependent. Kelly has the following items of income and expense: Income: Salary………………………………………………………………………………………..$ 60,000 Cash dividends……………………………………………………………………………….3,000 Interest
> Which of the following individuals must file a tax return in 2017? a. Carolyn is single and age 66. She receives $2,000 of interest income, $3,000 of dividend income, and $6,000 in Social Security benefits. b. Tim is single, age 18, and a full-time stu
> Differentiate a wealth tax from a wealth transfer tax and give examples of each.
> Edward is single with income that places him in the 25 percent marginal tax bracket. He incurs interest expense of $10,000 attributable to his investment in stocks and bonds. His gross investment income is $6,200 ($1,000 of which is from long-term capita
> Jennifer, a single individual, has a $20,000 loss from an S corporation, $11,000 salary from a part-time job, and $2,000 of interest income. Her itemized deductions include $4,000 interest on the $100,000 principal on her home acquisition mortgage, $2,80
> Michelle, a single individual, reports 2017 adjusted gross income of $280,000 and has the following itemized deductions before applicable limitations: Medical expenses……………………………………………………………………………………………….$14,000 Interest on home acquisition mortgage wit
> Ashley is single and owns a sole proprietorship. Her annual premium is $2,600 for her high-deductible medical policy with a $2,300 deductible. How much can Ashley set aside in an HSA? How much can she deduct for AGI?
> During 2017, Raymond, a single individual, earned a salary of $196,000. He also had the following items of investment income: $40,000 net short-term capital gain on sale of stock, $7,000 dividend income, $5,000 interest income from corporate bonds, and $
> Wendy is a single individual who works for MTP, Inc. During the entire calendar year, she works in France and pays French taxes of $8,000 on her $95,000 salary. Her taxable income without considering her salary from MTP is $10,000. Should Wendy claim the
> Melissa has $90,000 in salary from her full-time position and $40,000 in net income in 2017 from consulting as an independent contractor. What is her self-employment tax? What portion of this can she deduct?
> Four years ago, Handcock Corporation granted 300 SARs to Maria as a bonus. Handcock’s stock was worth $20 a share on the date of grant. Maria exercises her SARs this year when the stock is worth $60 a share. a. How much income should Maria have recogniz
> Three years ago, Netcom granted an ISO to Karen to buy 2,000 shares of Netcom stock at $6 per share exercisable for five years. At the date of the grant, Netcom stock was selling for $5 per share. This year, Karen exercises the ISO when the price is $30
> Linda’s husband dies, naming her the sole beneficiary of a $500,000 life insurance policy. The insurance company informs her that she has two options: (1) she can receive the entire $500,000 in one lump-sum payment or (2) she can receive annual installme
> Differentiate a consumption-based tax from an income tax and illustrate with an example.
> Justin’s 24-year-old son, Carlos, is a full-time student. In April 2017, Justin gave Carlos 450 shares of Striker Oil stock. Justin purchased the stock 8 months earlier at $18 per share. On the gift date, the stock was worth $31 per share. After the gift
> Clara and Charles decide to form a business. They each plan to contribute $15,000 in exchange for a 50 percent interest. The business will borrow $20,000 to cover the balance of its working capital needs. In their business plan, Clara and Charles show th
> Assume the same facts as problem 53, except that John and June expect the business will have a $44,000 loss in the first year (instead of a $64,000 profit) and will not make any cash distributions. Determine the income tax savings in the current year for
> Assume the same facts as problem 53, except that the business expects to make a cash distribution of $28,000 each to June and John the first year. Determine how much tax the business will pay and how much additional tax they will personally pay if they f
> June and John decide to form a business. They each plan to contribute $20,000 in exchange for a 50 percent interest in the business. They will then take out a bank loan for $30,000 to cover the balance of their working capital needs. They expect that the
> Krystyna, a single individual, invested $20,000 in corporate bonds with a stated interest rate of 5 percent and another $20,000 in tax-exempt municipal bonds issued for governmental activities with a stated interest rate of 4.75 percent. Calculate her af
> Sandle Corporation, an accrual-basis, calendar-year taxpayer, sold $15,000 of its products on account to Jim in November, year 1. In year 2, Jim declares bankruptcy and Sandle writes off the account as a bad debt. In year 3, Jim unexpectedly inherits a l
> Lilikoi Corporation began business in 2015. Lilikoi earned taxable income of $40,000 in 2015 and $120,000 in 2016. For 2017, Lilikoi Corporation has a net operating loss of $50,000 and decides to carry the loss back, filing a refund claim. Compute the am
> Stu and Harriett divorce on January 2 of the current year after eight years of marriage. Under the divorce decree, Harriett receives a vacation home that was held jointly with Stu while they were married. The vacation home was acquired seven years ago fo
> Cynthia and Howard, married taxpayers filing a joint return, have $100,000 in taxable income in 2017. They have 4 children (ages 4 through 12) who have no income that is taxable. If they can legally shift $2,000 in taxable income to each child, how much
> Explain the integration of the gift and estate taxes.
> Kimo Corporation, a cash-basis, calendar-year taxpayer, is in the 25 percent marginal tax bracket this year. Kimo owes a $15,000 expense that it may pay before the end of this year or in January of next year. a. If it expects its marginal tax rate to be
> Monico Corporation, a cash-basis, calendar-year taxpayer, is in the 25 percent marginal tax bracket this year. If it bills its customers at the beginning of December, it will receive $5,000 of income prior to year-end. If it bills its customers at the en
