The Graves Corporation was incorporated in 2016 and incurred a net operating loss of $35,000. The company’s operating income in 2017 was $47,000. Because of a downturn in the local economy, the company suffers a net operating loss of $21,000 in 2018. What is the treatment of the 2018 loss? How would your answer change if Graves were an S corporation?
> Jose donates stock worth $20,000 to the United Way. He purchased the stock several years ago for $8,000. His adjusted gross income is $60,000. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issu
> Diedre is single and has dividend income of $7,500 and a $6,000 long-term capital gain. She pays $9,000 of investment interest. The interest expense relates to all of the assets in her portfolio. Diedre has no tax-exempt income, her marginal tax rate
> During the current year, Inge sells stock purchased three years ago at a loss of $9,000. She also owns a 10% interest in Chatham, Inc., which is organized as an S corporation. Chatham reports ordinary income of $80,000 and a short-term capital gain of
> Donna bought her home several years ago for $200,000. She paid $20,000 down on the purchase and borrowed the remaining $180,000. When the home is worth $280,000 and the balance on the mortgage is $120,000, she borrows $110,000 using a home equity loan.
> Dwight purchases a new home costing $100,000 in the current year. He pays $15,000 down and borrows the remaining $85,000 by securing a mortgage on the home. He also pays $2,000 in closing costs, and $1,700 in points to obtain the mortgage. He pays $7,5
> Tom, an executive for a large corporation, enjoys the challenge of preparing his tax return. He is aggressive in preparing his return and searches through all the available publications to reduce his tax liability. In all the years Tom has completed hi
> Why is a taxpayer's filing status important?
> What limitations are placed on miscellaneous itemized deductions?
> What is an ad valorem tax? What is the significance of an ad valorem tax?
> Elki would like to invest $50,000 in tax-exempt securities. He now has the money invested in a certificate of deposit that pays 5.75% annually. What rate of interest would the tax-exempt security have to pay to result in a greater return on Elki's inve
> What is the standard deduction? Explain its relationship to a taxpayer's itemized deductions.
> Under what circumstances can a married person file as a head-of-household?
> What is a surviving spouse? Explain the tax benefit available to a surviving spouse.
> Refer to problem 71. In the following year, Jawan has the following capital gains and losses: Short-term capital loss………………………………..$ 1,300 Long-term capital gain………………………………….8,600 Long-term capital loss…………………………………..4,100 What is the effect of the c
> What is a multiple support agreement? When is a multiple support agreement necessary?
> Which parent is entitled to claim the dependency exemption for a child when the parents are divorced? Can the other parent ever claim the dependency exemption?
> What are the five tests that must met for an individual to be considered a dependent as a qualifying child? As a qualifying relative? Briefly explain each test.
> What is the difference between a personal exemption and a dependency exemption? Are all taxpayers allowed a personal exemption?
> What determines who must file a tax return?
> Compare and contrast the American Opportunity Tax Credit with the Lifetime Learning Tax Credit.
> Does the child-care credit help promote a progressive tax rate structure? Explain.
> Art is in the 28% marginal tax bracket for 2017. He owes a $10,000 bill for business expenses. Since he reports taxable income on a cash basis, he can deduct the $10,000 in either 2017 or 2018, depending on when he makes the payment. He can pay the bi
> What are the general criteria for eligibility for the child- and dependent-care credit?
> Is the child credit refundable? Explain.
> Merlene owns a bookstore. The store needs repainting, but she is short of cash to hire a painter. Fred is a painter who enjoys fine mystery novels. Merlene makes a deal with Fred to have him paint the bookstore for any 30 mystery novels Merlene has in
> What are the general criteria for eligibility for the earned income credit?
> Can all taxpayers who claim a child as a dependent receive a child tax credit for that child? Explain.
> Why did Congress enact the "kiddie tax"?
> What is the standard deduction amount for a dependent? Under what conditions can a dependent claim the same standard deduction as a single individual who is not a dependent?
> Explain the operation of the itemized deduction phase-out. What stops a taxpayer from losing all itemized deductions under the phase-out?
> Explain how the deduction allowed for a charitable contribution of ordinary income property is different from the deduction for the donation of long-term capital gain property.
> What limits are placed on deductions for charitable contributions?
> Inga, an attorney, completed a job for a client in November 2017. If she bills the client immediately, she will receive her $10,000 fee before the end of the year. By delaying the billing for a month, she will not receive the $10,000 until 2018. What
> Why is interest paid on a loan used to purchase municipal bonds not deductible?
> In 2011, Awnings, Inc., issues $200,000 of 15%, 20-year bonds payable at par. During 2017, when Awnings' bonds are trading at 93, the company purchases and retires $100,000 par value of the bonds. Identify the tax issue(s) posed by the facts presented.
> In what year(s) are points paid to acquire a loan deductible? Explain.
> Which types of interest are deductible as itemized deductions? What limitations (if any) are imposed on the deduction?
> Explain the limitations placed on deductions for medical expenses.
> One general requirement for deduction is that the expense be the taxpayer's, not that of another. Is this always true? Explain.
> What is(are) the main difference(s) between deductions for AGI and deductions from AGI?
> Harold works for the Zanten Corporation. Ken is self-employed. Zanten pays all of Harold's medical insurance premiums, whereas Ken purchases medical insurance from his insurance agent. Explain how the payments of Ken's and Harold's medical insurance a
> Chapter 6 discusses expenditures of individuals that are deductible for adjusted gross income (e.g., alimony) and explains the advantage of having an expenditure classified as a deduction for adjusted gross income. Chapter 8 discusses expenditures that
> Jay is single and works as a salesman. In December of the current year, he is selected as the company's outstanding salesperson. In recognition of this honor, he receives a $75,000 bonus, which puts him in the 39.6% tax bracket. Jay owns 2,400 shares
> Tom has $40,000 to invest and seeks your advice. A partner at Global Investments has proposed two investment opportunities: a real estate limited partnership or a five-year investment contract that will pay interest of 8% annually and return his origina
> Michiko and Saul are planning to attend the same university next year. The university estimates tuition, books, fees, and living costs to be $12,000 per year. Michiko's father has agreed to give her the $12,000 she needs to attend the university. Saul ha
> Herman sells his carpet-cleaning business to Elki. As part of the sales agreement, Elki pays Herman $3,000 for his agreement not to open another carpet-cleaning business in the area for 3 years. Identify the tax issue(s) posed by the facts presented.
> Marlene opens an outdoor sports complex that features batting cages, miniature golf, and a driving range. She invests $100,000 of her own money and borrows $750,000 from her bank. She uses $475,000 of the loan proceeds to acquire land and construct the
> Post Haste, incorporated in 2015, suffers a net operating loss of $80,000 in 2017. Post Haste had a net operating loss of $30,000 in 2015 and taxable income of $65,000 in 2016. Allison, the financial vice president of Post Haste, expects 2018 to be a b
> Habiby, Inc., has the following income and expenses for 2015 through 2018. What is the amount of tax that Habiby should pay each year? 2015 $ 280,000 $ 300,000 $ 290.000 (180,000) (200,000) 2016 2017 2018 $ 320,000 (220,000) Income Expenses Taxabl
> Faith, who is single, sells the following assets during 2017: • 20,000 shares of qualified small business stock at a loss of $62,000. Faith bought the stock in 2012. • 1,200 shares of Geelong Industries at a gain of $4,500. Faith bought the stock in 2014
> Andy sells the following assets during the year. Gain (Loss) Personal automobile…………..$ (2,000) ABC stock……………………………4,800 Per
> Jamila is involved in an auto accident during the current year that totally destroys her car. She purchased the car 2 years ago for $28,000. Jamila used the car in her business 75% of the time over the past 2 years. She had properly deducted $4,000 in
> Marsha owns a two-family condominium in southern California that she paid $140,000 for in 2002. One unit has 2,400 square feet of space, and the other has 1,600 square feet. Marsha uses the 2,400-square-foot unit as a vacation home and rents the other
> Kevin is the sole proprietor of Murph's Golf Shop. During the current year, a hurricane hits the beach near Kevin's shop. His business building, which has a basis of $60,000, is damaged. In addition, his personal automobile, for which he paid $22,000,
> Ghon and Li own a home on Lake Gibran. During a heavy rainstorm, the lake overflows and floods the basement, which is used as their family room. The entire contents of the basement (rug, furniture, stereo, and so on) are destroyed. The insurance adjuster
> During her vacation, Janita found a gold bar from a sunken ship while she was scuba diving off Texas. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.
> Since graduating from college, Mabel has used the firm of R&P to prepare her tax returns. Each January, Mabel receives a summary information sheet, which she fills out and sends to R&P along with the appropriate documentation. Because she has always rece
> Jorge and his wife own a beachfront vacation home in Savannah, Georgia. During the year, high winds from a tropical storm shatter a sliding glass door and rain from the storm causes extensive water damage to the kitchen. Fortunately, during a calm in t
> Leona owns 300 shares of Ross Industries. She acquired the shares on February 17, 2015, for $6,500. On September 17, 2017, she acquires another 200 shares of Ross for $4,800. Two weeks later, a lawsuit is filed against Ross for patent infringement, an
> Ed owns 500 shares of Northern Company for which he paid $15,000 several years ago. On November 24, he purchases an additional 350 shares for $6,300. Ed sells the original 500 shares for $10,000 on December 14. What are the effects of the December 14
> Darlene owns 500 shares of Sandmayor, Inc., common stock that she purchased several years ago for $20,000. During the current year, the Sandmayor stock declines in value. Darlene decides to sell the stock to realize the tax loss. On December 17, she s
> Howard Company is 100% owned by Rona. During the current year, Howard sells some land to Rona for $50,000 that had cost Howard $80,000 and that had a fair market value of $100,000. Write a letter to Rona explaining the tax effects of the sale.
> Elliot sells some stock to his sister, Nancy, for $4,000. His basis in the stock is $6,000. Several years later, Nancy sells the stock for $7,000. a. What is the effect of the sales on Elliot and Nancy? b. Assume that the subsequent sale by Nancy is
> Katelyn purchased 300 shares of Condine, Inc., stock in 2015 for $9,000. During 2017, she sells 200 shares of Condine to her brother, Jon, for $3,600 and the remaining 100 shares to an unrelated third party for $2,000. a. Assuming that these are her o
> Evita sells 2 pieces of land during the current year. She had used the first piece as a parking lot for her pet store. (She owns the store as a sole proprietor.) The land cost Evita $45,000, and she sells it for $28,000. The second piece is a building
> Rick, a single taxpayer, owns 30,000 shares of qualifying small business stock that he had purchased for $300,000. During the current year, he sells 10,000 of the shares for $25,000. a. What are the tax effects for Rick from selling the shares? b. Ass
> 1. Lynn and Laurie use the cash method of accounting and file their return on a calendar-year basis. Unless otherwise stated, assume that the Norris’ want to minimize the current year’s tax liability. 2. Lynn is 43 yea
> Sonya, who is single, owns 20,000 shares of Malthouse Corporation stock. She acquired the stock in 2014 for $75,000. On August 12, 2017, Sonya’s father tells her of a rumor that Malthouse will file for bankruptcy within the next week. The next day, So
> Reba's 2017 income tax calculation is as follows: Gross income……………………………………………………………………..$ 120,000 Deductions for adjusted gross income…………………………………….(3,000) Adjusted gross income……………………………………………………….$ 117,000 Deductions from adjusted gross income: St
> Newcastle Corporation was incorporated in 2016. For the years 2016 through 2018, Newcastle has the following net capital gain or loss. If Newcastle is in the 34% marginal tax bracket for each of these years, what effect do the net capital gains (losses
> Bongo Corporation is incorporated in 2015. It has no capital asset transactions in 2015. From 2016 through 2019, Bongo has the following capital gains and losses: Assuming that Bongo's marginal tax rate during each of these years is 34%, what is the e
> Labrador Corporation has total capital gains of $18,000 and total capital losses of $35,000 in 2017. Randy owns 25% of Labrador's outstanding stock. What is the effect on Labrador's and Randy's 2017 taxable incomes if a. Labrador is a corporation? Exp
> Goldie sells 600 shares of Bear Corporation stock for $9,000 on December 14, 2017. She paid $27,000 for the stock in February 2014. a. Assuming that Goldie has no other capital asset transactions in 2017, what is the effect of the sale on her 2017 inc
> During 2017, Yoko has total capital gains of $8,000 and total capital losses of $16,000. a. What is the effect of the capital gains and losses on Yoko's 2017 taxable income? Explain. b. Assume that in 2018 Yoko has total capital gains of $10,000 and tot
> Wilbur owns a 25% interest in the Talking Horse Corporation, which is organized as an S corporation. His basis in the property is $15,000. For the year, Talking Horse reports an operating loss of $28,000 and a capital loss of $6,000. Wilbur's adjusted
> Rhoda owns an electronics store that is burglarized during the current year. The burglars destroy the point-of-sale terminal and steal $380 from the cash drawer. The point-of-sale terminal was purchased for $7,500, and its adjusted basis is $3,700. Th
> Stella owns a taxicab company. During the year, two of her cabs are involved in accidents. One is totally destroyed; the other is heavily damaged. Stella is able to replace the destroyed cab with an identical model for $5,500. Her adjusted basis in th
> Marvin and Tracy Peery’s 2016 taxable income is $87,830 before considering the effect of their investment activities. Details of their 2016 sales of investment assets follows: / The Form 1099 Marvin and Tracy received from their broker indic
> Assume the same facts as in problem 47. What is FFF's allowable casualty loss deduction under each of the following situations? a. A comparable van sells for $4,000. After the accident, the insurance adjuster estimates the van was worth $1,500. The in
> Gordon is the sole proprietor of Fashion Flowers & Florals (FFF). During the current year, one of FFF's delivery vans is involved in an automobile accident. The van has a basis of $6,000. What is FFF's allowable casualty loss deduction under each of t
> Based on the facts of problem 57, calculate the taxable income and the tax liability for a married couple. Facts of problem 57, Total income…………………………………………………….$118,000 Excludable income………………………………………………..2,000 Deductions for adjusted gross income……………
> The Goodson Company is a chain of retail electronics stores. How much of a loss can Goodson deduct in each of the following cases. Explain. a. An employee drops a 65 inch 3D television, cracking the plastic case on the back. The television normally sel
> ABC Company owns a chain of furniture stores. How much loss can ABC Company deduct in each of the following cases? Explain. a. ABC closes a store in a depressed part of the county. Rather than move furniture to other stores, ABC sells furniture that ha
> Claudio owns a passive activity that has a basis of $28,000 and a fair market value of $38,000. The activity has suspended losses of $16,000. To reduce their estate, every year Claudio and his wife give their son Anthony and his wife a gift of approxima
> Masaya owns a passive activity that has a basis of $32,000 and a suspended loss of $13,000. Masaya's taxable income from active and portfolio income is $73,000. a. What is the effect on Masaya's taxable income if he sells the passive activity for $46,000
> Return to the facts of problem 39. Assume that Jeremy gives the property to his son Felipe when the property has a fair market value of $37,000. What is the effect of the gift on Jeremy's taxable income? Felipe's taxable income? Data from Problem 39:
> Return to the facts of problem 39. Assume that Jeremy dies when the passive activity has a fair market value of $25,000. What is the effect on Jeremy's taxable income for the year he dies? Data from problem 39: Jeremy owns a passive activity that has a
> Return to the facts of problem 39. Assume that Jeremy dies when the passive activity has a fair market value of $37,000. What is the effect on Jeremy's taxable income for the year he dies? Data from problem 39: Jeremy owns a passive activity that has
> What are the three basic tests that an expense must satisfy to be deductible?
> Jeremy owns a passive activity that has a basis of $30,000 and a suspended loss of $16,000. His taxable income from active and portfolio income is $81,000. a. What is the effect on Jeremy's taxable income if he sells the passive activity for $37,000?
> Return to the facts of problem 37. At the end of 2018, Mason sells the passive activity that generated the losses for $16,000. What is the effect on his taxable income if his basis in the activity sold is a. $4,000? b. $21,000? Data from Problem 37: M
> Mason owns a passive activity that generates a loss of $14,000 in 2016, $12,000 in 2017, and income of $4,000 in 2018. In 2017, Mason purchases a second passive activity that has passive income of $6,000 in 2017 and $10,000 in 2018. Discuss the effect
> Based on the following information, what are the taxable income and the tax liability for a single individual? Total income…………………………………………………….$118,000 Excludable income………………………………………………..2,000 Deductions for adjusted gross income…………………….2,500 Deduct
> Return to the facts of problem 35. In the next year, Janet has a taxable income from her salary and investment activities of $62,000. The results for her 3 passive activities are Passive Activity 1………………………………………$ 15,000 Passive Activity 2……………………………
> Janet has a taxable income of $54,000 from her salary and investment assets. She also owns 3 passive activities that have the following income (loss) for the year: Passive Activity 1…………………………….$ 12,000 Passive Activity 2…………………………..$ (18,000) Passi
> Jacqueline is a 60% owner of a rental property and has a significant role in the management of the property. During the current year, the property has a rental loss of $21,500. What is the effect of the rental property on her taxable income, if her adj
> Ivan and Olga own a duplex. They collect the rents and make repairs to the property when necessary. That is, they are active participants in the rental activity. During the current year, the duplex has gross rents of $16,000 and total allowable deduct
> Katrina is the sole owner of rental real estate that produces a net loss of $18,000 in 2016 and $22,000 in 2017 and income of $9,000 in 2018. Her adjusted gross income, before considering the rental property for the years 2016 through 2018, is $115,000,
> Mort is the sole owner of rental real estate that produces a net loss of $18,000 in 2016 and $20,000 in 2017 and income of $6,000 in 2018. His adjusted gross income, before considering the rental property for the years 2016 through 2018, is $120,000, $1
> Julio and Rosetta are retired and receive $12,000 in Social Security benefits during the current year. They also receive $10,000 in interest and taxable pension payments of $30,000. Prepare a spreadsheet calculating the amount of Social Security income
