Question: Mr. Lay, who has a 37 percent

> Croyden is a calendar year, accrual basis corporation. Mr. and Mrs. Croyden (cash basis taxpayers) are the sole corporate shareholders. Mr. Croyden is president of the corporation, and Mrs. Croyden is vice president. Croyden’s financial

> Dollin Inc. is incorporated under Virginia law and has its corporate headquarters in Richmond. Dollin is a distributor; it purchases tangible goods from manufacturers and sells the goods to retailers. It has a branch office through which it sells goods i

> Univex is a calendar year, accrual basis retail business. Its financial statements provide the following information for the year. Univex’s records reveal the following facts: Bad debt expense equals the addition to an allowance for b

> Ms. BK is a self-employed architect who earns $300,000 annual taxable income. For the past several years, her tax rate on this income has been 35 percent. Because of recent tax law changes, Ms. BK’s tax rate for next year will decrease to 25 percent. a.

> Mrs. K, a single taxpayer, earns a $42,000 annual salary and pays 15 percent in state and federal income tax. If tax rates increase so that Mrs. K’s annual tax rate is 20 percent, how much additional income must she earn to maintain her after-tax disposa

> Jurisdiction Z levies an excise tax on retail purchases of jewelry and watches. The tax equals 3 percent of the first $1,000 of the purchase price plus 1 percent of the purchase price in excess of $1,000. a. Individual C purchases a watch for $500. Compu

> Refer to Country A’s rate structure described in the preceding problem. Ms. SP’s annual taxable income for years 1 through 5 is $150,000. Ms. OC’s taxable income for years 1 through 4 is $20,000. In year 5, Ms. OC wins a lottery, and her taxable income f

> Company G, which has a 30 percent marginal tax rate, owns a controlling interest in Company J, which has a 21 percent marginal tax rate. Both companies perform engineering services. Company G is negotiating a contract to provide services for a client. Up

> Country A levies an individual income tax with the following rate structure: Percentage Rate ……………………..……………………..Bracket 10% ………………………………………….Income from –0– to $20,000 15 ……………………………………….Income from $20,001 to $75,000 25 …………………………………….Income from $75,

> Government G levies an income tax with the following rate structure: Percentage Rate ……………………………………..…..Bracket 6% …………………………………………Income from –0– to $30,000 10 ……………………………………..Income from $30,001 to $70,000 20 ……………………………………Income from $70,001 to $200,

> Firm Q and Firm R conduct business in a foreign country that imposes a 3 percent VAT. Firm Q produces entertainment videos at a $6 material cost per unit and sells the videos to Firm R for $9 per unit. Firm R sells the videos at retail for $10 per unit.

> Mr. and Mrs. CS operate a hardware store in a jurisdiction that levies both a sales tax on retail sales of tangible personality and an annual personal property tax on business tangibles. The personal property tax is based on book value as of December 31.

> Firm L, which operates a mail-order clothing business, is located in State L. This year, the firm shipped $18 million of merchandise to customers in State R. State R imposes a 6 percent sales and use tax on the purchase and consumption of retail goods wi

> Refer to Government G’s rate structure described in the preceding problem. Taxpayer O earns $50,000 annually during years 1 through 10. Taxpayer P earns $20,000 annually during years 1 through 5 and $80,000 annually during years 6 through 10. a. How much

> Mrs. DK, a resident of Rhode Island, traveled to Delaware to purchase an oil painting from a local artist. The cost of the painting was $9,400. Rhode Island has a 7 percent sales and use tax, while Delaware has no sales and use tax. a. How much Rhode Isl

> TR Company conducts business exclusively in State V, which levies a 5 percent sales and use tax on goods purchased or consumed in state. This year, TR bought equipment in State B. The cost of the equipment was $90,000, and TR paid $5,400 sales tax to Sta

> Mr. E, a petroleum engineer, earns an $83,000 annual salary, while Mrs. E, a homemaker, has no earned income. Under current law, the couple pays 20 percent in state and federal income tax. Because of recent tax law changes, the couple’s future tax rate w

> This year, State A raised revenues by increasing its general sales tax rate from 5 percent to 6 percent. Because of the increase, the volume of taxable sales declined from $800 million to $710 million. In contrast, State Z raised revenues from its 5 perc

> Ms. JK recently made a gift to her 19-year-old daughter, Alison. Ms. JK’s marginal income tax rate is 37 percent, and Alison’s marginal income tax rate is 12 percent. In each of the following cases, compute the annual income tax savings resulting from th

> Ms. Pay, who has a 40.8 percent marginal tax rate on interest income (37 percent income tax + 3.8 percent Medicare contribution tax), owns HHL Inc. corporate bonds in her investment portfolio. She earned $74,800 interest this year on her HHL bonds. Compu

> Mrs. Yue, a resident of Virginia, paid $50,000 for a bond issued by Pennsylvania that paid $3,400 interest this year. Her marginal state income tax rate is 6 percent. Under Virginia law, interest on debt obligations issued by another state is taxable. Mr

> Mrs. Wolter, an unmarried individual, owns investment land with a $138,000 basis, a nine year holding period, and a $200,000 FMV. Compute the after-tax (income tax and Medicare contribution tax) sale proceeds in each of the following cases: a. She sells

> Mrs. Turner died this year at age 83. On the date of death, the FMV of Mrs. Turner’s property was $46.3 million, and she owed $2.491 million to various creditors. The executor of her estate paid $17,800 funeral expenses and $294,200 legal and accounting

> Mr. Jackson died on June 19 when the total FMV of his property was $23 million and his debts totaled $2.789 million. His executor paid $23,000 funeral expenses and $172,000 accounting and legal fees to settle the estate. Mr. Jackson bequeathed $500,000 t

> Mr. Ito, an unmarried individual, made a gift of real estate to his son. Compute the amount subject to federal gift tax in each of the following situations: a. The FMV of the real estate was $4.75 million, and the transfer was Mr. Ito’s first taxable gif

> Mr. Erwin’s marginal tax rate on ordinary income is 37 percent. His $958,000 AGI included a $24,900 net long-term capital gain and $37,600 business income from a passive activity. a. Compute Mr. Erwin’s income tax on the $62,500 investment income from th

> Boyd Salzer, an unmarried individual, has $212,950 AGI consisting of the following items. Salary …………………………………………………….$188,000 Interest income …………………………………………..2,900 Dividend income …………………………………………8,300 Rental income from real property ………………..13,750

> Mr. Garza earned an $85,000 salary and recognized a $12,000 loss on a security sale and a $14,000 gain on the sale of a limited partnership interest. His share of the partnership’s business income through date of sale was $2,100. (Both the gain and the b

> Ms. Adams owns an interest in ABCD Partnership, which is a passive activity. At the beginning of the year, she projects that her share of ABCD’s business loss will be $16,000 and that she will have the following additional items. Net profit from her con

> Refer to the facts in the preceding problem. At the beginning of the year, Mr. L could have invested his $50,000 in Business Z with an 8 percent annual return. However, this return would have been ordinary income rather than capital gain. a. Considering

> Ms. Turney owns a one-half interest in an apartment complex, which is her only passive activity. The complex operated at a $53,000 loss this year. In addition to her share of this loss, Ms. Turney had the following income items. Salary ………………………………………….

> Mr. Kelly owns stock in VP and in BL, both of which are S corporations. This year, he had the following income and loss items. Salary …………………………………………………$62,300 Business income from VP ………………………19,000 Business loss from BL …………………………(25,000) Compute Mr

> Mr. and Mrs. Morris own a grocery store as a sole proprietorship. Their net profit and other relevant items for the year are as follows. Grocery store net profit …………………………………………$44,000 Deduction for SE tax ………………………………………………(3,109) Dividends and intere

> Mr. and Mrs. Poe earned $115,900 compensation income and $963 interest this year and recognized a $600 short-term capital gain and a $7,200 long-term capital gain on the sale of securities. They incurred $4,400 investment interest expense and $25,500 oth

> Ms. Reid borrowed $50,000 from a broker to purchase Lero Inc. common stock. This year, she paid $3,900 interest on the debt. Compute her itemized deduction for this interest in each of the following cases: a. The Lero stock paid a $1,100 dividend this ye

> In 2005, Mr. Earl, a single taxpayer, contributed $45,000 in exchange for 500 shares of DB stock. In 2008, he paid $40,000 to another shareholder to purchase 1,000 more DB shares. All DB’s stock qualified as Section 1244 stock when it was issued. This ye

> In 2000, Ms. Ennis, a head of household, contributed $50,000 in exchange for 500 shares of Seta stock. Seta is a qualified small business. This year, Ms. Ennis sold all 500 shares for $117,400. Her only other investment income was an $8,600 long-term cap

> Mr. Dunn, who has a 32 percent marginal tax rate on ordinary income, recognized a $15,000 capital loss in 2018. Compute the tax savings from this loss assuming that: a. He also recognized an $18,000 short-term capital gain. b. He also recognized an $18,0

> Diane Stacy, who has a 32 percent marginal tax rate on ordinary income and a 3.8 percent Medicare contribution tax rate on investment income, owns 13,800 shares in Tobler Mutual Fund. This year, she received an $88,400 dividend from Tobler. Compute Diane

> Mr. Scott sold rental real estate that had a $186,200 adjusted basis ($200,000 million cost − $13,800 straight-line accumulated depreciation). The sales price was $210,000. This was his only property disposition for the year. Compute Mr. Scott’s income t

> Mr. G has $15,000 to invest. He is undecided about putting the money into tax-exempt municipal bonds paying 3.5 percent annual interest or corporate bonds paying 4.75 percent annual interest. The two investments have the same risk. a. Which investment sh

> Mr. and Mrs. Scoler sold commercial real estate for $685,000. Their adjusted basis at date of sale was $544,700 ($596,600 cost − $51,900 straight-line accumulated depreciation). Compute the Scolers’ income tax and Medicare contribution tax on their recog

> Mrs. Cox, a head of household, earned a $313,000 salary and recognized a $29,300 net long-term capital gain this year. Compute the income tax on the gain if: a. None of the gain is collectibles gain or un recaptured Section 1250 gain. b. $10,000 is colle

> Mr. Fox, a single taxpayer, recognized a $64,000 long-term capital gain, a $14,300 short-term capital gain, and a $12,900 long-term capital loss. Compute Mr. Fox’s income tax and Medicare contribution tax if his taxable income before consideration of his

> Refer to the preceding problem. Determine which of the four cases results in a capital loss carry forward for Mr. and Mrs. Revel. What is the amount and character of each carry forward? Data from Problem 24: Mr. and Mrs. Revel had $206,200 AGI before c

> Mr. and Mrs. Revel had $206,200 AGI before considering capital gains and losses. For each of the following cases, compute their AGI: a. On May 8, they recognized a $8,900 short-term capital gain. On June 25, they recognized a $15,000 long-term capital lo

> This year, Linda Moore earned a $112,000 salary and $2,200 interest income from a jumbo certificate of deposit. She recognized a $15,300 capital loss on the sale of undeveloped land. Compute Linda’s AGI and any capital loss carry forward into future year

> Mr. Alm earned a $61,850 salary and recognized a $5,600 capital loss on the sale of corporate stock this year. Compute Mr. Alm’s AGI and any capital loss carry forward into future years in each of the following cases: a. Mr. Alm had no other capital tran

> Refer to the preceding problem. For each case, determine CVF’s tax basis in the security received in the exchange. Data from Problem 19: CVF owned 2,000 shares of Jarvis nonvoting common stock with a $225,000 basis. In each of the following cases, dete

> CVF owned 2,000 shares of Jarvis nonvoting common stock with a $225,000 basis. In each of the following cases, determine CVF’s recognized gain or loss on the disposition of this stock: a. CVF exchanged it for 1,300 shares of Jarvis voting common stock wo

> Vern plans to invest $100,000 in a growth stock, in year 0. The stock is not expected to pay dividends. However, Vern predicts that it will be worth $135,000 when he sells it in year 3. The $35,000 increase in value will be taxable at the preferential ca

> In 2016, Mr. Dale paid $47,600 for 3,400 shares of GKL Mutual Fund and elected to reinvest his year-end dividends in additional shares. In 2016 and 2017, he received Form 1099s reporting the following. a. If Mr. Dale sells his 4,052 shares for $18 per

> Refer to the facts in the preceding problem. Assume that on January 1, 2025, Mr. Fairhold’s unrecovered investment in the annuity is $1,875. a. How much of his total 2025 annuity payments ($15,600) are taxable? b. Assume that he dies in February after re

> Fifteen years ago, Mr. Fairhold paid $50,000 for a single-premium annuity contract. This year, he began receiving a $1,300 monthly payment that will continue for his life. On the basis of his age, he can expect to receive $312,000. How much of each month

> In 2016, Mrs. Ulm paid $80,000 for a corporate bond with a $100,000 stated redemption value. Based on the bond’s yield to maturity, amortization of the $20,000 discount was $1,512 in 2016, $1,480 in 2017, and $295 in 2018. Mrs. Ulm sold the bond for $84,

> Mr. Nixon and Mr. Ryan are employed by HD Inc., which provides its employees with free parking. If the parking were not available, Mr. Nixon would pay $35 a month to a city garage. Mr. Ryan uses public transportation to commute. HD offers a complete fami

> Mrs. Eller’s corporate employer has a cafeteria plan under which its employees can receive a $3,000 year-end Christmas bonus or enroll in a qualified medical reimbursement plan that pays up to $3,000 of annual medical bills. Mrs. Eller is in a 24 percent

> Mr. Kim is a U.S. citizen who has been stationed at his employer’s Tokyo office for the last six years. a. Compute Mr. Kim’s AGI if his only income for the year was his $65,000 salary. b. Compute Mr. Kim’s AGI if his only income for the year was his $169

> Mr. and Mrs. Soon are the sole shareholders of SW Inc. For the last three years, SW has employed their son as a sales representative and paid him a $30,000 annual salary. During a recent IRS audit, the revenue agent discovered that the son has never made

> Ms. Sturm owns a tax-deferred retirement account with a $200,000 current balance. She intends to roll over this balance into a new Roth IRA before the end of the year. Ms. Sturm’s current marginal tax rate is 35 percent. Compute Ms. Sturm’s tax cost of c

> Mrs. Lohan, age 64, plans to retire this December. She estimates that the balance in her IRA will be $86,500, which she plans to withdraw to finance the purchase of a condominium. Assuming that her marginal tax rate is 24 percent, compute her after-tax c

> Moto Inc. pays state income tax at a 6 percent rate and federal income tax at a 21 percent rate. Moto recently engaged in a transaction in Country N, which levied a $97,300 tax on the transaction. This year, Moto generated $2.738 million net income befor

> Mr. and Mrs. Brock own a bakery. Their marginal tax rate on the bakery’s income is 32 percent. The Brocks’ 18-year-old daughter Megan works part-time in the bakery. This year, Megan earned $15,284 of wages, which was her only income. a. Compute Megan’s i

> Mrs. Kwan withdrew the entire $8,000 balance from her Roth IRA this year. Her total contributions to the account were $6,070, and her marginal tax rate is 12 percent. Determine the tax cost of the withdrawal if: a. Mrs. Kwan is age 63 and opened the Roth

> Mr. Ballard retired in 2018 at age 69 and made his first withdrawal of $35,000 from his traditional IRA. At year-end, the IRA balance was $441,000. In 2019, he withdrew $60,000 from the IRA. At year-end, the account balance was $407,000. Determine how mu

> Mrs. Shin retired in 2017 at age 63 and made her first withdrawal of $20,000 from her traditional IRA. At year-end, the IRA balance was $89,200. In 2018, she withdrew $22,000 from the IRA. At year-end, the account balance was $71,100. Determine how much

> Mr. Gilbert is self-employed and makes annual contributions to a Keogh plan. Mrs. Gilbert’s employer doesn’t offer any type of qualified retirement plan. Each spouse contributes $3,000 to a traditional IRA. In each of the following cases, compute the AGI

> Mr. and Mrs. Marlo file a joint tax return. Each spouse contributed $5,000 to a traditional IRA. In each of the following cases, compute the deduction for these contributions. The AGI in each case is before any deduction. a. Mr. Marlo is an active partic

> Mr. and Mrs. Davos file a joint tax return. Each spouse contributed $3,800 to a traditional IRA. In each of the following cases, compute the deduction for these contributions. The AGI in each case is before any deduction. a. Neither spouse is an active p

> What is the maximum IRA contribution that Mr. Janson can make under each of the following assumptions? a. He is age 20 and single. His only income item is $13,200 interest from a trust fund. b. He is age 40 and single. His only income item is a $31,900 s

> Mr. and Mrs. Weiss had the following income items. Mr. Weiss’s salary …………………………………………………$105,000 Mrs. Weiss’s earnings from self-employment ……………50,000 The income tax deduction for Mrs. Weiss’s SE tax was $3,532. Mr. Weiss contributed the maximum to h

> Marlo, a publicly held corporation with a 21 percent tax rate, has agreed to pay an annual salary of $1.3 million to its employee, Mrs. Ryman. In each of the following cases, compute Marlo’s after-tax cost of the salary. In making your calculation, ignor

> Company EJ plans to build a new plant to manufacture bicycles. EJ sells its bicycles in the world market for $400 per bike. It could locate the plant in Province P, which levies a 20 percent tax on business income. On the basis of the cost of materials a

> Refer to the facts in the preceding problem. Assume Mrs. Bard retires in 2023 and receives her first $20,000 payment from Lyton Industries. a. How much compensation income does Mrs. Bard recognize in 2023? b. What is Lyton Industries 2023 tax deduction f

> This year, Mrs. Bard, who is head of Lyton Industries’s accounting and tax department, received a compensation package of $360,000. The package consisted of a $300,000 current salary and $60,000 deferred compensation. Lyton will pay the deferred compensa

> Refer to the facts in the preceding problem. Petro Inc. pays $125,000 deferred compensation to Mr. Gilly in 2025, the year of his retirement. a. How much compensation income does Mr. Gilly recognize in 2025? b. What is Petro’s 2025 tax deduction for the

> Mr. Gilly is the PFO of Petro Inc. This year, his compensation package was $625,000. Petro paid him a $500,000 salary during the year and accrued an unfunded liability to pay him the $125,000 balance in the year he retires at age 60. a. How much compensa

> Mrs. Kirk withdrew $30,000 from a retirement account and used the money to furnish her new home. Her marginal tax rate is 24 percent. Compute the tax cost of the withdrawal in each of the following cases: a. Mrs. Kirk is 56 years old. She withdrew the mo

> Mr. Toomey (a 45-year-old single taxpayer) exercised an ISO and purchased $380,000 worth of his employer’s stock for only $113,000. His only other income was his $158,500 salary, and he doesn’t itemize deductions. Compute Mr. Toomey’s income tax includin

> Trent Inc. needs an additional worker on a multiyear project. It could hire an employee for a $65,000 annual salary. Alternatively, it could engage an independent contractor for a $72,000 annual fee. If Trent’s income tax rate is 21 percent, which option

> In 2011 (year 0), Mrs. Linsey exercised a stock option by paying $100 per share for 225 shares of ABC stock. The market price at date of exercise was $312 per share. In 2018, she sold the 225 shares for $480 per share. Assuming that Mrs. Linsey is in the

> In 2013, BT granted a nonqualified stock option to Ms. Pearl to buy 500 shares of BT stock at $20 per share for five years. At date of grant, BT stock was trading on Nasdaq for $18.62 per share. In 2018, Ms. Pearl exercised the option when BT’s stock was

> Refer to the facts in the preceding problem. Five years after Gogo granted the option to Mrs. Mill, she exercised it on a day when Gogo stock was selling for $10.31 per share. a. How much income must Mrs. Mill recognize in the year of exercise? b. What i

> Lardo Inc. plans to build a new manufacturing plant in either Country X or Country Y. It projects gross revenue in either location of $4 million per year. Operating expenses would be $1.5 million in Country X and $1.8 million in Country Y. Country X levi

> In each of the following cases, determine if the United States has jurisdiction to tax Mr. KT. a. Mr. KT is a U.S. citizen but has been a permanent resident of Belgium since 1993. b. Mr. KT is a citizen and resident of Canada. He owns an apartment buildi

> On September 30, 2014, Stalling Inc. issued 2,000 shares of its publicly traded stock as compensation to its employee, Mr. Harry. On the date of issuance, the stock’s fair market value was $40,000. Under the terms of his 2014 compensation contract, Mr. H

> Peet Company provides free on-site day care for its employees with preschool children. Determine the pretax value of the care for each of the following employees: a. Mrs. Udolf, who has a 32 percent marginal tax rate and who would pay $10,675 annually fo

> Greg Company agreed to pay Ms. Bilko $45,000 compensation for services performed for the company. a. Compare the income tax consequences to Greg and Ms. Bilko if she is an employee or if she is an independent contractor. b. Compare the payroll tax conseq

> Mr. and Mrs. Daku had the following income items. Mr. Daku’s salary ……………………………………..$52,500 Mrs. Daku’s Schedule C net profit ………………..41,800 Interest income …………………………………………….1,300 Mrs. Daku’s self-employment tax was $5,906. Mrs. Daku’s Schedule C net

> Mr. Olaf earned an $89,000 salary, and Mrs. Olaf earned a $40,330 salary. The couple had no other income and can’t itemize deductions. a. Compute their combined tax if they choose to file separate returns. b. Compute their tax if they file a joint return

> Ms. Gomez earned a $91,250 salary, and Mr. Hill earned a $171,000 salary. Neither individual had any other income, and neither can itemize deductions. a. Compute Ms. Gomez and Mr. Hill’s combined tax if they file as single individuals. b. Compute Ms. Gom

> Mr. and Mrs. Ohlson file a joint income tax return. Determine if each of the following unmarried individuals is either a qualifying child or a qualifying relative. a. Son Jack, age 20, lives in his parents’ home and works full-time as an auto mechanic. J

> Ms. West is an unmarried individual. Determine if each of the following unmarried individuals is either a qualifying child or a qualifying relative. a. Daughter Dee, age 20, is a student at State University but lists Ms. West’s home as her permanent resi

> Ms. Noteboom, a single taxpayer, projects that she will incur about $13,500 of expenses qualifying as itemized deductions in both 2018 and 2019. Assuming that her standard deduction is $12,000 in both years, compute the effect on taxable income for each

> Mr. and Mrs. Brown report taxable income of $130,000 in 2018. In addition, they report the following. Excess Social Security Withholding Credit ………………$ 2,200 Estimate tax payments 4,000 Withholding ……………….14,200 Compute the amount due or refund claimed

> Firm W, which has a 32 percent marginal tax rate, plans to operate a new business that should generate $40,000 annual cash flow/ordinary income for three years (years 0, 1, and 2). Alternatively, Firm W could form a new taxable entity (Entity N) to opera

> In January, Ms. NW projects that her employer will withhold $25,000 from her 2019 salary. However, she has income from several other sources and must make quarterly estimated tax payments. Compute the quarterly payments that result in a 2019 safe-harbor

> Jaclyn Biggs, who files as a head of household, never paid AMT before 2018. In 2018, her regular tax liability was $102,220 which included 39,900 capital gain taxed at 20 percent, and her AMTI in excess of her exemption amount was $422,500. Compute Jacly

> In each of the following cases, compute AMT (if any). For all cases, assume that taxable income does not include any dividend income or capital gain. a. Mr. and Mrs. Baker’s taxable income on their joint return was $200,000, and their AMTI before exempti

> Mr. and Mrs. Kigali’s AGI (earned income) was $14,610. Their federal income tax withholding was $850. They had no itemized deductions and two dependent children, ages 18 and 19. If Mr. and Mrs. Kigali are entitled to a $4,716 earned income credit, comput