On July 8, 2015, Joe and Jill sell their principal residence for $650,000. Their adjusted basis in the property is $275,000. To complete the sale, Joe and Jill have to take back a second mortgage for $120,000. The buyers borrow $465,000 from a local bank and put down $65,000 in cash. In December 2017, Joe and Jill are notified that the buyers have defaulted on the second mortgage and filed for bankruptcy. A large manufacturing plant near the house has closed, and the housing market is overstocked; the value of the house has dropped significantly -- below the amount remaining on the bank's mortgage. Joe and Jill want to deduct the loss on the second mortgage. The IRS Hot Line adviser tells them the loss is not recognizable because there is no basis in the mortgage debt. Joe and Jill never reported as income the payments they received on the second mortgage. Advise Joe and Jill on the deductibility of the defaulted mortgage.
> Thomas is a self-employed plumber under the age of 50. His earnings from self- employment, before the Keogh deduction but after deducting half of the self-employment tax, are $80,000. What is his deductible Keogh contribution for 2017? a. $54,000. b.
> A participant in a 401(k) plan under the age of 50 may contribute up to what amount in 2017? a. $5,500. b. $12,500. c. $18,000. d. $54,000.
> To obtain and retain qualified status, a pension or profit-sharing plan must not discriminate in favor of highly compensated employees, who include: a. Employees who own more than 5% of the corporation’s stock. b. Employees who received more than $100,
> A qualified pension plan provides significant tax benefits to both employers and employees including: a. Employer contributions are not treated as compensation to the employee. b. Earnings from the investments held in the plan are tax-deferred. c. No ta
> A participant in a Keogh plan over the age of 50 may contribute up to what amount in 2017? a. $6,500. b. $24,000. c. The lower of $54,000 or 25% of earned income from self-employment. d. The greater of $54,000 or 25% of earned income from self-employmen
> Sanjay purchased a single life annuity contract for $200,000. The contract will pay $15,000 per year beginning in 2017 for the remainder of his life and has an expected return of $330,000. What amount of taxable income must Sanjay report in 2017? a. $
> June, age 76, and Augustus, age 78, are married. They purchased a single life annuity contract that will pay $1,500 per month for the life of June. The expected return on the contract: a. Is $190,800. b. Is $214,200. c. Is $405,000. d. Cannot be deter
> Julio is 62 and single. He purchased a single life annuity contract that will pay him $1,000 a month for life with a minimum payout of 10 years. His expected return on the contract: a. Is $120,000. b. Is $270,000. c. Is $282,000. d. Cannot be determin
> Regarding a Coverdell Education Savings Account: a. Distributions are tax-free to the beneficiary if they are used for his or her qualified education expenses. b. Qualified education expenses include required tuition, fees, books, supplies, and equipme
> Withdrawals from a Roth IRA are: a. Subject to the required minimum distribution rules. b. Taxable if made after the five-tax-year period beginning with the first tax year in which a Roth contribution was made. c. Deemed to come first from contribution
> Juanita, age 62, retired in 2017. During the year, she received distributions of $9,000 from her IRA. She made nondeductible contributions of $20,000 to the IRA in prior years and has never received a nontaxable distribution. As of December 31, 2017,
> Which of the following statements is true? a. Only employers can establish tax-deferred retirement plans. b. Generally, plan distributions are taxable if the contributions were made with untaxed dollars. c. The donor and the beneficiary of a retirement
> Mark, who is single, must start making distributions from his pension plan beginning April 1, 2017. At the end of 2016 when Mark was 71 years old, the plan had a balance of $220,000. He will use a single life expectancy. What amount must Mark take as
> If a qualified pension plan is being distributed using joint life expectancy: a. The taxpayers cannot choose to refigure their life expectancy. b. If the beneficiary dies, no adjustment of the denominator used to calculate minimum distributions is requ
> Juan is single and retired on January 1, 2017 at age 62. He is entitled to receive monthly payments of $1,500 over his life from his employer’s qualified pension plan. The payments began January 1, 2017. He contributed $71,500 to the plan prior to his
> Vanessa and Martin file a joint return for 2017. They have one child age 12. They have combined AGI of $202,000 in 2017. What is their maximum permitted contribution to a Coverdell Education Savings Account for 2017? a. $0. b. $800. c. $1,200. d. $2,
> Without regard to AGI limitations, what is the maximum contribution permitted to a Coverdell Education Savings Account in 2017? a. $500 b. $2,000 c. $5,500 d. The lower of $5,500 or 100% of compensation
> Vickie is single and age 43. She reported AGI of $123,000 in tax year 2016. She is an active participant in her employer’s pension plan. What is the maximum Roth IRA contribution she can make in 2017? a. $0. b. $2,200. c. $3,300. d. $5,500.
> Patrice is single and age 26. She reported AGI of $65,000 in tax year 2017. She is an active participant in her employer’s pension plan. What is the maximum deductible Roth IRA contribution she can make in 2017? a. $0. b. $2,200. c. $3,300. d. $5,500.
> Jack is single and age 53. He reported AGI of $68,000 in 2017. He is an active participant in his employer’s pension plan. What is the maximum deductible IRA contribution he can make in 2017? a. $2,200 b. $2,600 c. $3,900 d. $6,500
> Ed and Cathy, both under age 50, file a joint return. Neither is covered under an employer pension plan. Cathy earned compensation of $53,000 in 2017. Ed worked part-time and earned $1,200. What is the maximum deductible IRA contribution they can mak
> Terri is single and age 32. She reported AGI of $64,000 in tax year 2017. She is an active participant in her employer’s pension plan. What is the maximum deductible IRA contribution she can make in 2017? a. $0. b. $1,100. c. $4,400. d. $5,500.
> Which of the following is an individual-sponsored pension plan? a. Defined benefit plan. b. Keogh plan. c. Roth IRA. d. SIMPLE plan.
> In a large food or beverage establishment, any tip shortfall from a directly tipped employee is recorded on the employee’s W-2 as a. W-2 box 8 - Allocated tips. b. W-2 box 14 - Other. c. W-2 box 1- Wages, tips, other compensation. d. W-2 box 7 - Social
> Carmen earned $75 in tips in September. When must she inform her employer of her tips on Form 4070 for federal income tax and FICA withholding purposes? a. By September 30. b. By October 10. c. By October 31. d. She is not subject to payroll taxes on t
> Dewoun has two jobs, and both employers withheld FICA tax. From his first job, he earned $102,100, and from his second job, he earned $28,200. How much can Dewoun claim as an additional payment on his Form 1040 as excess social security paid in 2017?
> Carlos earned a total of $225,000 for 2017. How much in FICA tax will his employer be required to withhold in his name? a. $10,834.50. b. $11,148.90. c. $11,373.90. d. $12,029.10.
> Adenike has two jobs and earned $ 110,000 from her first job and $20,000 from her second job. How much total FICA taxes will Adenike have withheld from her wages from working two jobs? a. $9,730.80. b. $9,732.00. c. $9,771.40. d. $9,945.00.
> Erica earned $128,800 during 2017. How much will her employer withhold from her, in total, for FICA taxes? a. $9,069.60. b. $9,214.60. c. $9,741.00. d. $9,754.00.
> Marla is married, is paid $2,565 semimonthly, and claims four withholding allowances. What is the amount of federal income tax withheld on Marla’s gross wages for the semimonthly period? a. $190.57. b. $197.50. c. $200.51. d. $207.56.
> Adam received a bonus of $4,400 from his employer. Which one of the following federal income withholding tax amounts is not in accordance with IRS rules regarding supplemental wage payments? Adam earns biweekly wages of $3,500, is single, and claims on
> A taxpayer with 2017 AGI of $160,000 has no income tax withholding and is required to pay estimated taxes. The taxpayer can avoid an underpayment penalty by paying a. At least 90% of the 2017 tax liability ratably over four quarterly payments. b. At le
> On January 2, 2017, Jane employed a part-time household worker in her home. She paid the household worker $350 per month for 2017. What amount of FICA tax is Jane required to record on Schedule H? a. $237.30. b. $321.30. c. $558.60. d. $642.60.
> Carol works for ABC Company and earned $63,000 for the entire 2017 year. How much in FUTA tax is her employer required to withhold in her name? Assume that the employer receives the maximum credit for state unemployment taxes. a. $0 . b. $42.00 c. $43
> Ely is single and is paid $1,190 per week and claims one allowance. What is the amount of federal income tax withheld on Ely’s gross wages for the week? a. $184. b $186. c. $203. d. $206.
> Adrienne is a self-employed attorney. She has net earnings (profit) from her practice of $106,800. Her self-employment taxes for the year are: a. $13,117.76. b. $13,338.85. c. $14,204.40. d. $15,090.36.
> Carlos has two jobs; he is an attorney (not a partner) in a law firm and he has a small legal practice (sole proprietorship) providing real estate legal services. How does he compute his federal income tax for the year? a. His wages from the law firm a
> Employers pay a maximum federal unemployment tax of 6.0% on how much of an employee’s taxable wages for 2017? a. $1,800. b. $3,800. c. $5,800. d. $7,000.
> Household employees are subject to FICA withholding if they are paid at least what amount during any calendar quarter in 2017? a. $1,500. b. $1,800. c. $1,900. d. $2,000.
> Employers are required to deposit FUTA taxes when their liability exceeds a. $100. b. $500. c. $1,000. d. $1,500.
> To what amount of employer tax accumulation does the one-day deposit rule apply? a. $75,000. b. $100,000. c. More than $100,000. d. An amount between $75,000 and $99,999.
> A semiweekly schedule depositor’s payroll period ends and is paid on Friday, June 24. The depositor (employer) must deposit the federal taxes for this pay period on or before a. The following Wednesday. b The following Friday c. June 25. d.June 29.
> What is the penalty for sending a required tax payment (unless specifically allowed) directly to the Internal Revenue Service? a. 2% . b. 5%. c. 10%. d. 15%.
> Lauer Company started its business on July 25, 2017. On August 11, it paid wages for the first time and accumulated a tax liability of $48,000. On Friday, August 18, it incurred a tax liability of $52,000. How is Lauer Company treated as a depositor?
> An employer will prepare Schedule B of Form 941 under which circumstances? a. Line 12 on the Form 941 is less than $2,500. b. The employer is a semi-monthly depositor. c. The employer is a monthly depositor. d. The employer is a semi-weekly depositor.
> Employees claim withholding allowances on Form W-4. Each withholding allowance claimed lowers their annual withholding base by what amount for calendar year 2017? a. $3,900. b. $3,950. c. $4,000. d. $4,050.
> Which of the following conditions must be met for a taxpayer to be able to claim the foreign tax credit (FTC) without filing Form 1116? a. All of the foreign-source income is passive income. b. All of the foreign-source income was reported on Form 1099.
> Which of the following expenses are qualifying expenses for purposes of the education credits? a. Books (purchased at the institution as a condition of enrollment). b. Tuition. c. Room and Board. d. Both (a) and (b).
> Terrance is age 71 and retired. Beginning in 2017, he must start taking minimum distributions from his IRA account that had a balance of $150,000 as of December 31, 2016. Make these three assumptions: his IRA will earn 8% per year; he will withdraw th
> The city of Stillcreek decides to expand the runway at the local airport. To get the land for the expansion, it condemns the property it needs and pays the owners the current appraised value. Buster's house is condemned, and he is paid $340,000 for his
> During the current year, the Harlow Corporation, which specializes in commercial construction had the following property transactions. Determine the realized and recognized gain or loss on each of Harlow’s property transactions and the basis of any prope
> At the beginning of 2017, Heather owns the following stocks: In addition to these stocks, Heather received 400 shares of Poor Boy preferred stock from her grandfather as a gift on December 25, 2016. The shares were selling for $25 per share on December
> Twenty years ago, Consuela Guererro invented and patented a high-speed burrito-stuffing machine. Through the years, she has jealously guarded her invention, allowing its use only in El Consuela's, a chain of restaurants in which she owns 60% of the stock
> Rosie has owned a successful luncheonette for several years. Tired of the long hours and eager to try another way of life, she decides to buy a fishing boat and start a charter service near Key West. The only obstacle is the sale of the following asset
> During August 2012, Madeline invests $400,000 in Qual Company, Inc., buying 100,000 shares of stock. Her broker tells her this will be an excellent investment because the securities are qualified small business stock. He predicts the stock will triple
> Return to the facts of problem 50. How would your answer change if Yorgi purchased the qualified small business stock in Gnu Company, Inc. on September 15, 2011, and sells the shares for $400,000 on December 31, 2017? Data from Problem 50: Return to th
> Return to the facts of problem 48. Assume that Yorgi purchased the qualified small business stock in Gnu Company, Inc., on September 15, 2009, and sells the shares for $400,000 on December 30, 2017. a. Determine the amount of realized and recognized g
> Return to the facts of Problem 48. Assume that Yorgi has a net capital loss of $80,000 from her other capital asset transactions in 2017. What is the effect of the sale of the stock on Yorgi’s tax liability if her marginal tax rate is 33%. Data from P
> Under what conditions may a taxpayer exclude a portion of a realized capital gain?
> Yorgi purchases qualified small business stock in Gnu Company, Inc., on September 15, 2008, for $50,000. She sells the shares for $400,000 on December 30, 2017. The stock retains its qualified small business status through the date of the sale. a. Det
> Jie has the following capital gains and losses during the current year: Short-term capital loss………………………………………$ 2,000 Collectibles gain…………………………………………………..3,000 Unrecaptured Section 1250 gain…………………………..8,000 Long-term capital gain……………………………………..12,0
> Samantha has the following capital gains and losses during the current year: Short-term capital loss……………………………..$ 7,000 Short-term capital gain…………………………………5,000 Collectibles loss……………………………………………11,000 Long-term capital gain………………………………….8,000 Long-t
> Loretta has the following capital gains and losses during the current year: Short-term capital loss……………………………………..$ 4,000 Collectibles gain…………………………………………………10,000 Long-term capital gain………………………………………..8,000 Long-term capital loss carryover………………………
> Rollie has the following capital gains and losses during the current year: Short-term capital gain……………………………$ 3,000 Collectibles gain………………………………………….4,000 Long-term capital gain………………………………11,000 Long-term capital loss………………………………..6,000 Rollie is m
> Troy has the following gains and losses from sales of capital assets during the current year. What is the effect of the capital asset transactions on his taxable income? Explain, and show any calculations. Short-term capital gain…………………$ 7,800 Short-t
> Tate has the following gains and losses from sales of capital assets during the current year. What is the effect of the capital asset transactions on Tate's taxable income? Explain, and show any calculations. Short-term capital gain………………….$ 3,600 Lo
> Return to the facts of problem 40. Assume that Judith is an individual taxpayer. What is the effect of the capital asset transactions on Judith's taxable income? Compare this result with the result in problem 40. Data from Problem 40: Judith Corporat
> Judith Corporation has the following gains and losses from sales of capital assets during the current year. What is the effect of the capital asset transactions on Judith's taxable income? Explain, and show any calculations. Short-term capital gain…………
> Rudy has the following capital gains and losses for the current year. What is the effect of the capital asset transactions on his taxable income? Explain, and show any calculations. Short-term capital loss…………………$ 15,500 Long-term capital gain……………………
> Evaluate the following statement: Corporations can never deduct net capital losses.
> For each of the following capital asset dispositions, determine whether the taxpayer has realized a gain or loss and whether that gain or loss is short-term or long-term: a. Larry's aunt June dies on May 4, 2017. He inherits some land that she purchased
> For each of the following capital asset dispositions, determine whether the taxpayer has realized a gain or loss on the disposition and whether that gain or loss is short-term or long-term: a. Ari receives some stock from his grandfather Stephan for Chri
> Mort begins investing in stocks in 2016. Listed here are his stock transactions for 2016 and 2017. Determine Mort's gain or loss on his stock transactions for 2016 and 2017. In addition, for each sale of stock, determine whether the gain or loss is sh
> Spencer purchases 100 shares of Reality Virtual Corporation common stock for $1,200 on July 30, 2017. He sells 75 shares of this stock for $525 on December 27, 2017. On January 12, 2018, Spencer purchases 300 shares of Reality Virtual stock for $2 per
> Classify each of the following assets as ordinary income property, capital asset property, Section 1231 property, or personal use property. If more than one classification is possible, explain the circumstances that would determine the proper classifica
> Classify each of the following assets as ordinary income property, capital asset property, Section 1231 property, or personal use property. If more than one classification is possible, explain the circumstances that would determine the proper classifica
> Return to the facts of problem 29. What tax-planning strategy can be used to achieve more favorable tax results? Use this strategy to determine Guerda's gain or loss on the sale. Data from Problem 29: Guerda owns 1,500 shares of Ditchdirt common stock
> Return to the facts of problem 29. Assume that Guerda sells the remaining 800 shares of Ditchdirt stock for $10 per share and pays a commission of $400 on the sale. What is her gain or loss on the sale? Data from Problem 29: Guerda owns 1,500 shares o
> Return to the facts of problem 29. Assume that Guerda later sells an additional 200 shares of the Ditchdirt stock for $20 per share, paying a commission of $600 on the sale. What is her gain or loss on the sale of the stock? Data from Problem 29: Gue
> Guerda owns 1,500 shares of Ditchdirt common stock. During the current year, she sells 500 shares of the stock for $15 per share and pays a commission of $300 on the sale. Guerda had purchased the 1,500 shares as follows: / What is
> What is (are) the current tax advantage(s) of selling an asset at a long-term capital gain?
> Elvira owns an office building, and Jared Partnership owns an apartment building. Each property is encumbered by a mortgage. Elvira and Jared Partnership agree to exchange their properties and mortgages, with any difference to be paid in cash. The fai
> During the current year, James sells some land he purchased in 2012 as an investment. He had paid $4,000 in cash and borrowed $22,000 to buy the land. He had paid legal fees of $440 and commissions of $560 on the purchase. He sells the land on October
> Determine the amount of gain or loss realized and the amount of gain or loss to be recognized in each of the following dispositions: a. Jorge owns 800 shares of Archer Company stock. He had purchased 300 of the shares for $9,000 and 500 of the shares fo
> Determine the amount of gain or loss realized and the amount of gain or loss to be recognized in each of the following dispositions: a. On October 1, Rufus Partnership sells land to Gerald for which it had paid $32,000. Gerald agrees to pay Rufus $15,00
> Tuyen is negotiating the sale of her lake front property near Wabasha. Nils is offering • Cash of $10,000 • A parcel of land near Red Wing valued at $5,000 with an adjusted basis of $3,000 • A ski boat valued at $9,000 with an adjusted basis of $15,000
> Determine the amount realized in each of the following property dispositions: a. Umberto wants to buy Kevin's truck. Because Umberto has no cash and cannot obtain a loan to finance the purchase, Kevin agrees to let Umberto pay him $320 a month for 6 mon
> Determine the amount realized in each of the following property dispositions: a. Herbert sells some land he owns to Elroy in exchange for $23,000 in cash and 2 breeding hogs worth $1,500 each (adjusted basis of $500 each). In closing the sale, Herbert i
> Alex purchases a building in 1986 at a cost of $500,000. ACRS depreciation on the building totals $320,000, whereas straight-line depreciation would be $260,000 for the same period. Alex sells the building for $620,000. a. What is Alex's gain on the sa
> Maria sells the automobile she uses in her job as a marketing representative for $3,000. The car cost $15,000 four years earlier. Maria uses the automobile 80% of the time in her job and 20% of the time for personal purposes. At the date of sale, Maria
> Avalon Inc., buys equipment costing $150,000 in 2014 and sells it in 2017. Avalon deducts $94,000 in depreciation on the equipment before the sale. What is the character of the gain or loss on the sale of the equipment if the selling price is a. $90,00
> Why is a distinction made between long-term capital gain (loss) property and short-term capital gain (loss) property?
> The Gladys Corporation buys equipment (7-year MACRS property) costing $658,000 on May 12, 2017. In 2020, new and improved models of the equipment make it obsolete, and Gladys sells the old equipment for $34,000 on December 27, 2020. a. What is the cha
> Rhinelander Corporation has the following net Section 1231 gains and losses for 2012 through 2016: 2012……………………………………$ 8,000 2013………………………………………(6,000) 2014……………………………………..(13,000) 2015…………………………………………11,000 2016………………………………………..15,000 a. What is th
> Dawn started her own rock band on January 2, 2015. She acquired all her equipment on January 2, 2015, and did not dispose of any of it before 2017. On April 15, 2017, the band’s amplifier, speakers, and other electronic equipment, are stolen after a co
> In 2017, Sondra Corporation recognizes $18,000 in Section 1231 gains and $10,000 in Section 1231 losses. In 2012, Sondra reported $12,000 in Section 1231 losses and no Section 1231 gains. No other Section 1231 gains or losses were recognized by Sondra
> Refer to the facts in problem 58. In the following year, FFF has these gains and losses: Casualty gain on building………………$ 5,000 Section 1231 gains…………………………$ 3,000 Section 1231 losses………………………..$ 17,000 What is the effect of these transactions on
> Fred's Foam Foundations (FFF) is a sole proprietorship that Fred started in 2012. Before the current year, FFF had not disposed of any property it owned. During the current year, FFF has the following gains and losses: Casualty Loss on foam truck …………
> Opal's neighbor, Jillian, persuades her to invest in Schaake Corporation, a new venture, on March 4, 2016. Opal pays $15,000 for 3,000 shares of common stock. On February 6, 2017, Schaake Corporation declares bankruptcy and closes its doors forever. O
> Dagwood has come to you with a pressing problem. In November 2006, he purchased an office building that he has rented out to various businesses. On May 2 of the current year, a fire swept through the building, totally destroying it. To make matters wo
