Tonya purchased land for investment purposes in 2014 for $21,000. In 2017, she sells the land for $36,000. The terms of the sale require the purchaser to pay Tonya $12,000 per year for three years with interest of 6% on the unpaid balance. Tonya also sells stock that she paid $28,000 for in 2015 for $16,000. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.
> Explain why each of the following expenditures is or is not deductible: a. Lumbar, Inc., pays $12,000 as its share of its employees’ Social Security tax. The $12,000 is deductible. b. Leroy pays a cleaning service $250 per month to clean his real estate
> Briefly state Adam Smith's four requirements for a good tax system.
> Celine opens a jewelry store during the current year. She invests $20,000 of her own money and receives a nonrecourse bank loan of $80,000. During the current year, the store has a loss of $24,000. Determine the possible tax consequences of each issue
> The Readyhough Corporation was incorporated in 2009. During 2016, the corporation had operating income of $80,000. Because of a strike at its major supplier, the corporation had an operating loss of $60,000 in 2017. The corporation expects to rebound
> Rick and Debbie Siravo own a beachfront home in Wrightsville Beach, NC. During the year, they rent it for 20 weeks (140 days) at $1,100 per week and use it 10 days for personal purposes. Rick actively participates in the management of the property, but
> Nathan and Maranda agree to divorce in the current year. In structuring the divorce agreement, Maranda proposes that Nathan assign a $200,000 life insurance policy on himself to her as part of the divorce agreement. Under Maranda's proposal, Nathan wou
> Adela owns rental real estate that generated a $27,000 loss during the current year. Using the information below as a guide, prepare a spreadsheet calculating her adjusted gross income. It should be flexible enough to calculate Adela's adjusted gross i
> Suzanne is married and the sole owner of Laidlaw Corporation. When the corporation was established in 2006, she received 10,000 shares of qualified small business stock in exchange for her $100,000 investment. On four occasions, Suzanne made loans tota
> Carla is an engineer for Snyder Corporation and travels frequently. On a recent business trip to Indianapolis, she checks into her hotel room early on Sunday afternoon and then spends the rest of the day touring the city. When she goes to put on her e
> The Internal Revenue Service provides information on a variety of tax issues in its publication series. These publications can be found on the IRS world wide web site (http://www.irs.gov/). Go to the IRS World Wide Web site and find publications with i
> Alicia, Bob and Carol are equal partners in, Dunning Law Associates. In 2011, Alicia, in an attempt to maximize the firms return on its investment portfolio, encourages her partners to acquire $90,000 of stock in a local Internet provider. The stock wa
> George is single and has adjusted gross income of $37,000. He discovers termites in the basement of his house and pays $6,200 to fix the damage. His insurance company will not reimburse him for the damage. Determine the possible tax consequences of eac
> On January 1, 2017, Brenda acquires 200 shares of Disney stock for $8,000. She sells 200 shares of the stock on September 2, 2017, for $30 per share. On September 23, 2017, Brenda acquires 400 shares of Disney stock for $10,400. Determine the possible
> Classify the following items as ordinary income, a gain, or an exclusion: a. The salary received by an employee b. Dividends of $400 received on 100 shares of corporate stock c. Sale for $10,000 of an antique chair that cost $3,500 d. Rental income from
> Alphonse sells stock with a basis of $5,500 to his brother, Conner, for $4,000. His brother sells it later in the year for $5,100. Determine the possible tax consequences of each issue you identify.
> Zoriana sells stock that she acquired in 2013 for $7,500. Her basis in the stock is $14,000. She has a $2,000 long-term capital loss carryover from 2016. Determine the possible tax consequences of each issue you identify.
> In the United States, dividends received from corporations are taxable at long-term capital gains rates. Because the corporation paying the dividend does not get a deduction for dividends paid, the dividends are subject to double taxation. Other countrie
> Mike's Pizza decides to replace one of its delivery vehicles. The vehicle has a basis of $2,700 and Mike's is able to sell it for $2,100.
> Orlando owns a passive activity with a basis of $13,000 and a $6,000 suspended loss. He dies when the passive activity has a fair market value of $17,000. Determine the possible tax consequences of each issue you identify.
> Anthony owned a 2015 Luxuro automobile that had a fair market value of $18,000. His son James, who is 19, borrows the car without his father's knowledge and totals it in 2016. James has been involved in two car accidents, and his father is afraid that
> What is the purpose of the passive loss rules?
> Discuss the basic differences between annual losses and transaction losses.
> How are deductions and losses different? How are they similar? Explain.
> How are the rules for deducting personal casualty and theft losses different from the rules for business casualty and theft losses? Explain the difference in treatments and the rationale for the difference.
> What is a wash sale? How is the treatment of a wash sale different from the treatment of other sales of securities?
> Classify the following items as ordinary income, a gain, or an exclusion: a. The gross revenues of $160,000 and deductible expenses of $65,000 of an individual's consulting business b. Interest received on a checking account c. Sale for $8,000 of Kummel
> Losses incurred on the sale of business assets are generally deductible in full in the year the loss is realized. Describe a situation in which a realized loss on the sale of a business asset is not deductible in the current year, and explain why it wou
> Capital gains of individuals are taxed at a 15% rate (0% for 10% and 15% marginal tax rate taxpayers, 20% for 39.6% marginal tax rate taxpayers). Capital gains of corporations are taxed at the corporation’s marginal tax rate. In reducing the individual
> What is the purpose of the related party rules as they apply to sales of property?
> Most sales of securities at a loss result in capital losses. Under what circumstances would a loss on the sale of a security be treated as an ordinary loss? Explain the rationale for allowing this treatment.
> What are the limitations on the deductibility of capital losses by individuals? How do the limitations compare with those for corporations?
> When a business sustains a loss from a casualty, one of two measurement rules is used to determine the amount of the loss. Why is the use of two measurement rules necessary for determining a business casualty loss?
> For purposes of the passive loss rules, what is a closely held corporation? How is the tax treatment of passive losses incurred by a closely held corporation different from the tax treatment of passive losses incurred by: a. Individuals? b. Corporation
> Are the passive loss rules disallowance-of-loss provisions or are they loss deferral provisions? Explain.
> What is a nonrecourse debt? How is financing using nonrecourse debt different from financing using recourse debt?
> How is a taxpayer's amount at risk in an activity different from the taxpayer's basis in the same activity? What purpose does the amount at risk serve in regard to losses?
> What are the characteristics of a tax shelter as the term is commonly used by tax practitioners?
> Darrell is an employee of Whitney's. During the current year, Darrell's salary is $136,000. Whitney's net self-employment income is also $136,000. Calculate the Social Security and self-employment taxes paid by Darrell and Whitney. Write a letter to
> Gloria sells land that she held as an investment for $2,000 to the Lacy for Senate Campaign Committee. Gloria purchased the land twenty years ago for $2,000. The chairman of the Lacy for Senate Campaign Committee intends to sell the land at an auction of
> What are the net operating loss carryback and carryforward periods? Does a taxpayer have a choice of the years to which a net operating loss can be carried? Explain.
> The enactment of the passive loss rules has generally diminished the attractiveness of tax shelters as investments. However, rental real estate continues to provide a viable tax shelter for certain taxpayers. Explain why this is true.
> Jordan and her brother Jason agree to purchase a hardware store from a local bank, which acquired it through foreclosure. Because the bank wants to sell the business, Jordan and Jason can to buy it for only $160,000. Jordan will invest $42,000 and own
> Exeter Savings and Loan is located in a two-story building in downtown Exeter. The building has a basement in which the heating system for the bank is located. The bank also uses the basement to store records and photocopying equipment. Last fall, the
> Calculate Calzone Trucking's 2017 taxable income. Indicate the amount and the effect of any carryforwards or carrybacks on Calzone Trucking's current, past, or future income.
> Harold and Maude are both 55 years of age and have two married children. Harold is an engineer and is an active participant in his company’s qualified pension plan. Maude is a retired school teacher and works for an educational non-profit organization.
> In 2015, Samantha loaned her friend Lo Ping $15,000. The loan required Lo Ping to pay interest at 8% per year and to pay back the $15,000 loan principal on July 31, 2017. Lo Ping used the loan to start a clothing store. Lo Ping paid Samantha interest
> During the current year, Carson pays $1,500 in child support and $2,000 in alimony to his ex-wife. What is Carson's allowable deduction, and how should it be deducted on his tax return?
> Can Joe Corporation deduct the following expenses related to its business? a. Legal fee paid ($40,000) to acquire a competing chain of stores b. Legal fee paid ($12,000) to determine whether it should become an S corporation c. Legal fee paid ($5,000) to
> Kuerten Manufacturers sue the Rafter Corporation for patent infringement. The court upholds Kuerten’s claim and requires Rafter to pay Kuerten $2,000,000 in damages. However, the court does not allow Kuerten to recover its $100,000 in legal expenses fr
> Eric is a self-employed financial consultant. During the current year, Eric's net self-employment income is $160,000. What is Eric's self-employment tax?
> The Kimpton Corporation pays the following taxes during 2017: Federal taxes withheld from employees……………………………….$26,000 State taxes withheld from employees …………………………………………9,000 Social Security withheld from employees………………………………… 4,850 Kimpton's share
> Martin receives the following tax bills, related to a rental dwelling, from the county treasurer. Special assessment for installing sidewalks and streets……………………… 12,000 Real property tax on dwelling for the 1/1/17 -- 12/31/17
> State whether the following taxes are allowed as a current deduction for taxes paid by a business: a. Sales tax on the purchase of a desk b. State and local income, real estate, and personal property taxes c. Federal income, estate, and gift taxes d. An
> For each of the following situations, state whether the expense related to the transaction can be deducted as an insurance expense: a. Baker Company pays the insurance premium to provide each of its employees with a $50,000 whole life insurance policy.
> KOM pays the following insurance premiums during 2017: Auto accident and liability insurance: Paid 1/1/17 Coverage period 1/1/17 - 12/31/17…………………..$3,500 Fire, storm, and other casualty insurance: Paid 4/1/17 Coverage pe
> The Rollins Group produces training corporate training videos. It operates as a sole proprietorship and is 100% owned by Scott Rollins. For 2017, Rollins has gross receipts from qualified production activities of $1,500,000. The cost of goods sold rel
> The Cavanaugh Corporation owns the licensing rights to the Mississippi Marauders hockey apparel. For 2017, Cavanaugh has gross receipts from qualified production activities of $6,000,000. The cost of goods sold related to these receipts is $2,000,000,
> In addition to being an employee of Rock Hard Roofing Material, Lou owns 10% of the company's common stock. Rock Hard falls on hard times in 2016. To forestall bankruptcy, Rock Hard's employees and shareholders loan the company $1,000,000. Lou's share
> The following information is from the financial records of the Adham Corporation at the end of the year: Accounts receivable…………………………..$ 450,000 Allowance for bad debts account………….(34,000) Net accounts receivable…………………..$ 416,000 The allowance for b
> RealTime Rentals leases space on its Internet server. Its standard one-year lease agreement requires new customers to pay the first and last months' rent upon signing the lease and a $500 deposit that is returned after the customer has been with RealTim
> During the year, Grace Inc. has total sales of $800,000. Based on total sales, the corporation estimates that its bad debts for the year are 2% of sales. As a result, the corporation deducts $16,000 in bad debts for financial accounting purposes. At t
> Gosney Corporation has 2 employees. During the current year, Clinton earns $80,000 and Trahn earns $150,000. How much Social Security tax does Gosney have to pay on the salaries earned by Clinton and Trahn?
> Howard loaned $8,000 to Bud two years ago. The terms of the loan call for Bud to pay annual interest at 8%, with the principal amount due in three years. Until this year, Bud had been making the required interest payments. When Howard didn't receive t
> Chet is an officer of the Branson Corporation a publicly traded corporation. His salary for the year is $1,320,000, which is the sixth-highest salary at Branson. What amount can the corporation deduct as salary expense? How would your answer change if
> Cory is the fourth-highest-paid officer of the Mast Corporation, a publicly traded corporation. The company pays Cory a salary of $1,100,000. What amount can it deduct as salary expense? Would your answer change if Mast is a closely held corporation a
> Paula is single and works as a high school science teacher. Each summer, she travels to a national conference on high school science curriculum. She also spends one week during the summer traveling to areas in the United States to further her science k
> For each of the following situations determine whether the expenses are deductible as an education expense. a. Dorothy owns a real estate business. She is enrolled in a one-year weekend MBA program that meets in a city three-hours away. She takes a tra
> Jan owns the Mews Bar and Grill. Every year at Christmas, he has a party for his 20 employees and their families. This year’s party cost $1,600. At the party, Jan presented each employee with a $50 gift certificate redeemable for merchandise at a loca
> Floyd owns an antique shop. During the year, he and his wife, Amanda, who works as a real estate broker, attend a 3-day antique show in Boston. The expenses related to the antique show are as follows: Train per person……………………………………………$ 110 Hotel daily
> Marisa is an obstetrician. Every February, she attends a 3-day conference on financial planning with Ester, her college roommate. Ester is Marisa’s accountant and is a certified financial planner. This year, the seminar was in San Di
> Meek, Inc., remodeled its offices this year. Renee, the executive vice president, bought the desk, couch, and lamp set that had been in her office for $200. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences
> Olga has to travel to Philadelphia for 2 days on business. She enjoys history and is planning to visit the Liberty Bell and other historic sights in the city. If time permits, she would like to make a side-trip to nearby Gettysburg. A friend of Olga's
> Chai is self-employed and travels to New Orleans for a business conference. The following facts are related to the trip: Round trip airfare………………………………………………..$375 Hotel daily rate for single……………………………………….120 Conference registration fee……………………………………1
> Return to the facts of problem 48. Assume that each month, Joe Bob has $2,800 in federal income tax and $900 of state income tax withheld from his salary. What is Joe Bob's take-home pay in pay in a. March? b. November?
> Juanita travels to San Francisco for 7 days. The following facts are related to the trip: Round trip airfare…………………………………………………..$ 475 Hotel daily rate for single or double occupancy……………175 Meals -- $40 per day ………………………………………………….40 Incidentals -- $2
> Prudy is a recent college graduate who has taken a position with a real estate brokerage firm. Initially, Prudy will be selling both residential and commercial property. She is thinking about buying a new car at a cost of $14,500. However, the salesper
> Mario owns his own business and drives his car 15,000 miles a year for business and 7,500 miles a year for commuting and personal use. He wants to claim the largest tax deduction possible for business use of his car. His total auto expenses for 2017 ar
> Cassandra owns her own business and drives her van 15,000 miles a year for business and 5,000 miles a year for commuting and personal use. She purchases a new van in 2017 and wants to claim the largest tax deduction possible for business use. Cassandra
> Julianita is a sales representative for a food distributor and spends only 1 day of the week in the office. Her office is 12 miles from home. She also has a part-time job as a bartender. Typically, she works 2 nights during the week and 1 night on the
> Pablo is a computer sales representative and spends only 4 days a month in the office. His office is 18 miles from home. Pablo spends 3 nights a month traveling to his out-of-town clients. a. What portion of Pablo's travel is considered business? b. Du
> For each of the following situations, explain whether a deduction should be allowed for entertainment expenses: a. Gayle, a dentist, invites 50 of her best patients to her daughter's wedding reception. The cost of the reception related to the presence of
> Gilbert got married this year. Because he couldn't afford a wedding reception, his employer gave him the $5,000 he needed to pay for it. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that
> For each of the following situations, explain whether a deduction should be allowed for entertainment expenses: a. Neil owns a real estate agency and has an annual Christmas party at his house. The party is only for employees of his firm and costs $2,60
> Marcel is the former chief executive officer and chairman of the board of Donovan Technology. He is a member of the board of directors and has the title of chairman emeritus. Marcel and his wife enjoy having parties and entertaining clients of Donovan.
> Karl is the vice president of finance for Wyatt Industries. Last month, he took a client to an afternoon baseball game. The box-seat tickets cost $30 each. Because the client had a plane flight after the game, Karl was unable to take her to dinner. Duri
> Marla had $2,100 in state income taxes withheld from her 2017 salary. When she files her 2017 state income tax return, her actual state tax liability is $2,300.
> A.J. is the vice president for Keane Products, a marketing consulting firm. On a business trip to New York City, he meets with three executives from Keane’s top account. After the meeting, A.J. takes them to dinner and then to the theater. The theater
> During the current year, the Coetzer Corporation hires Marcelo, and agrees to reimburse him for all his moving costs. Marcelo submits the following expenses to Coetzer for reimbursement: Transportation of household goods………………………$2,700 Airfare ……………………
> Myron graduates from college this year and lands a job with the Collingwood Corporation in Dallas. After accepting the job, he flies to Dallas to find an apartment. Myron uses $2,000 his grandmother gave him as a graduation gift to pay a moving company
> Simon graduated from Lessard University last year. He financed his education by working part-time and borrowing $16,000. During the current year, he pays $1,400 of interest on his student loan. a. What amount can Simon deduct as student loan interest i
> Martha graduated from Tassle Tech and immediately started working as an accountant for Creedon Industries. To finance her college education, she borrowed $23,000 from a local bank pays $1,800 of interest expense during the year. Her adjusted gross inco
> Lleyton is single and has adjusted gross income for 2017 of $58,000. He works as a marketing manager for a national clothing store. During the year he enrolls in two business courses at Heath University. Even though the courses improve his job skills,
> How does gross income differ from income?
> Yung is the sole owner of Southern Hills Insurance Agency. His primary business is the sale of fire and casualty policies. He has recently expanded his business by selling life insurance policies. Under his agreement with Heart Life Insurance Company,
> Gary and Patricia are divorced and have three children, ages 9, 6, and 2. Patricia has custody of the children and is entitled to the dependency exemption for each child. Their adjusted gross incomes are $48,000 and $61,000 respectively. During the cu
> Alex and Carmin are married and have two children, ages 6 and 3. Their adjusted gross income for the year is $123,000. a. What is maximum amount they can contribute to each child’s Coverdell Education Savings Account for the year? b. If their adjust
> Kevin and Jill are married and file a joint return. Kevin is 52, and is not an active participant in a qualified employee pension plan, while Jill is 48 and is an active participant in a qualified employee pension plan. Determine the maximum Roth IRA c
> Chanda is 36, single, and an active participant in a qualified employee pension plan. Determine the maximum Roth IRA contribution that she can make in each of the following cases: a. Her adjusted gross income for the year is $66,000. b. Her adjusted gro
> While reading a State College alumni newsletter, Linh is surprised to learn that interest paid on student loans is deductible. Linh graduated from college 2 years ago and paid $1,200 in interest during the current year on loans that he took out to pay h
> Kathy, who is single and 25, inherited $7,000 from her grandmother. A coworker has suggested that Kathy open an Individual Retirement Account with the $7,000. Her friend says that an IRA is a great way to save because you don't have to pay tax on the i
