Question: Why are self-employed taxpayers allowed a

> Kelvin owns and lives in a duplex. He rents the other unit for $750 per month. He incurs the following expenses during the current year for the entire property: Mortgage interest………………...…………………. $7,500 Property taxes ……………………….…………………..2,000 Utilitie

> Shirelle and Newman are each 50% partners of a business that operates as a partnership. The business reports the following results: Revenue…………………………….………………..$95,000 Business expenses………………….……………..48,000 Investment expenses ……………….………………8,000 Short-t

> What is a §1231 asset? How are gains and losses from the sale of §1231 assets treated? On what tax form are gains and losses from the sale of §1231 assets reported?

> Dominique and Terrell are joint owners of a bookstore. The business operates as an S corporation. Dominique owns 65%, and Terrell owns 35%. The business has the following results in the current year: Revenue………………………………………. $1,500,000 Business expens

> Ricardo acquired a warehouse for business purposes on August 30, 1998. The building cost $420,000. He took $227,600 of depreciation on the building, and then sold it for $500,000 on July 1, 2017. What are the amount and nature of Ricardo’s gain or los

> Antoine sold the following stock in 2017. ABC, Inc., is a §1202 qualified small business (QSB). Asset Cost Acquired Sale Price Sale Date  ABC, Inc. 200 shares $148,000 1/10/09 $200,000 4/30/17  DEF, Inc. 100 shares  21,000 11/15/1

> Brantley owns an automobile for personal use. The adjusted basis is $19,500, and the FMV is $16,000. Assume Brantley has owned the automobile for two years. a. Respond to the following if Brantley sells the vehicle for $16,000. (1). What is the amoun

> Respond to the following independent situations: a. Masa and Haiming, husband and wife, filing jointly, earn $275,000 in salaries and do not have any net investment income. (1). How much in surtax will Masa and Haiming be assessed on their Form 1040 for

> Haneen has taxable income of $115,000 without consideration of capital gain or loss transactions. She has a short-term capital gain of $15,000, a long-term capital loss of $7,000, and a short-term capital gain of $4,000. Assume none of the gains or los

> In 2017 Landon has self-employment earnings of $195,000. Compute Landon’s self- employment tax liability and the allowable income tax deduction of the self-employment tax paid.

> Jackie owns a temporary employment agency that hires personnel to perform accounting services for clients. During the year, her entertainment expenses for her clients include the following: Cab fare to and from restaurants…………………………$ 350 Gratuity at

> Alice owns undeveloped land with an adjusted basis of $160,000. She sells the property to George for $205,000. a. What is Alice’s realized and recognized gain? b. To what IRC section does the gain on the property apply? c. If the land is used in a tra

> In 2017, Rosalva sold stock considered short-term for a gain of $925 and stock considered long-term for a loss of $2,165. She also had a $3,000 short-term loss carryover from 2016 and a $1,240 long-term loss carryover from 2015. a. What amount will be

> Can the owner of rental property be treated as conducting a trade or business with respect to the rental property? If so, what must the taxpayer do for it to be considered a trade or business?

> Davidson Industries, a sole proprietorship, sold the following assets in 2017: Asset Cost Acquired Depreciation Sale Price Sale Date  Warehouse $150,000 10/10/10 $25,801 $175,000 3/15/17  Truck  18,000 1/15/16  6,480  16,000 

> Jordan took a business trip from New York to Denver. She spent two days in travel, conducted business for nine days, and visited friends for five days. She incurred the following expenses: Airfare ……………………………………………. $ 550 Lodging……………………………………………. 3

> Using the following independent situations, answer the following questions: Situation # 1 Clara received from her Aunt Sona property with a FMV at the date of the gift of $40,000. Aunt Sona purchased the property five years ago for $35,000. Clara sol

> Suzette inherited property from her father on April 19, 2017. The FMV at the date of death was $40,000. The property was worth $35,000 six months later and had a basis to her father of $25,000. a. What is the basis of the inherited property to Suzett

> Walt purchased a computer for $5,000. He could use the computer exclusively for his business, or he could allow his family to use the computer 60% of the time and 40% would be for business use. Determine the tax deduction for the year of acquisition un

> Brittany purchased a building for $500,000 on January 1, 2009. The purchase price does not include land. Calculate the cost recovery for 2009 and 2017 if the real property is: a. Residential real property. b. A warehouse.

> On June 10, 2017, Huron purchased equipment (7-year class property) for $75,000. Determine Huron’s cost recovery deduction for computing 2017 taxable income. Assume Huron does not make the §179 election or bonus elections.

> Michael is the sole proprietor of a small business. In June 2017 his business income is $12,000 before consideration of any §179 deduction. He spends $245,000 on furniture and equipment in 2017. If Michael elects to take the §179 deduction and no bonu

> Umair sold some equipment he used in his business on August 29, 2017, that was originally purchased for $70,000 on November 21, 2016. The equipment was depreciated using the 7-year MACRS method for a total of $18,574. Assume there is no additional nett

> Discuss the concept of ordinary income property and give some examples.

> What is a capital asset? What factors affect the determination of whether an asset is classified as a capital asset?

> What are the different classifications of capital assets? List each classification and the rate at which the gains are taxed.

> When we determine whether an asset is a §1231 asset, does the length of time the asset is held affect the classification? Explain.

> Can travel expenses to and from rental property be deducted? If so, what are the rules concerning the deductibility of travel, and how is the deduction calculated?

> What determines whether land is a capital asset? How else can land be classified?

> What type of compensation is subject to employer withholding?

> What is a capital gain distribution, and how is it taxed?

> Who completes Form W-4, and what is its purpose? What information does it provide to employers?

> Why are charitable contributions stated separately on the K-1 but not deducted on a partnership return?

> Why are the income and losses (or expenses) separately stated to the partner, shareholder or owner, and on what form(s) are they reported?

> Two kinds of education tax credits are available. Name them and briefly discuss the criteria necessary to claim each of the credits.

> How can the gain from the sale of property be characterized? Why is it important to correctly characterize the gain on the sale of property?

> Explain the two instances in which taxpayers may choose to deduct foreign taxes as an itemized deduction rather than as a credit.

> Would your answer to Question 10 change if Jake also rented his house (at fair market value) to his brother and his family for 7 days? Data from Question 10: Jake has a vacation rental house at the beach. During the tax year, he and his immediate fami

> Does the length of time a capital asset is held affect the gain or loss on the sale of the asset? Explain.

> Jake has a vacation rental house at the beach. During the tax year, he and his immediate family used the house for 12 days for a personal vacation. Jake and his son spent two more weekends (4 days) repairing steps from the property to the beach. The b

> A taxpayer has $2,000 of qualified employment-related expenses paid on behalf of one qualifying child. Determine the maximum and minimum amount of child and dependent care tax credit available to the taxpayer and explain the circumstances in which the m

> When must employers make payroll tax deposits?

> What are the tip reporting requirements for large food and beverage establishments?

> When are employees required to report tips to their employer? Are tips subject to the same withholding requirements as regular salary?

> In addition to federal tax withholding, what other taxes are employers required to withhold from an employee’s paycheck? How are the calculations made?

> If a taxpayer makes $30,000 per year, will the annual withholding differ depending on whether the taxpayer is paid weekly, semimonthly, or monthly? Explain.

> What is meant by the terms realized gain (loss) and recognized gain (loss) as they apply to the sale of assets by a taxpayer?

> How are household payroll taxes reported? When are they due?

> What is the FUTA tax, and at what percentage is it assessed?

> The amount of the premium tax credit is the lesser of what two factors?

> How are gains (losses) from the sale of property acquired from a decedent taxed?

> What are supplemental wage payments?

> What is the maximum annual contribution that can be made to a Coverdell Education Savings Account? Can an eligible beneficiary have more than one CESA?

> How often must employers report payroll taxes to the IRS? What form must the employer file?

> Jerome is single and cannot be claimed by anyone as a dependent. He is a student at a local university enrolled full-time in an MBA program. His tuition bill was $5,000. He paid the bill by withdrawing $2,000 from his savings account and borrowing the

> What is the deadline by which contributions must be made to a traditional IRA to obtain a tax deduction in the current year?

> How are the terms basis, adjusted basis, and fair market value defined as they apply to the calculation of gains and losses?

> What are the two components of the self-employment tax? Is either component limited?

> What is the maximum annual contribution that can be made to an SEP, and how is the maximum calculated?

> Briefly discuss the conditions necessary for a taxpayer to be permitted to make tax-deductible contributions to a simplified employee pension (SEP).

> What is the maximum annual contribution that can be made to a Keogh plan, and how is the maximum calculated?

> Distinguish between travel and transportation expenses.

> Discuss the concept of listed property.

> Briefly discuss the conditions necessary for a taxpayer to be permitted to make tax-deductible contributions to a Keogh plan.

> When calculating depreciation for personal property (assuming the half-year convention) using the IRS depreciation tables, does the taxpayer need to multiply the first year table depreciation percentage by one-half? What about in the year of disposal, a

> What is a depreciation convention? What conventions are available under MACRS?

> Discuss the difference between personal property and real property. Give examples of each.

> Discuss the word basis in relation to the financial accounting term book value. What is meant by the term adjusted basis?

> What are the two broad categories of retirement plans? Give some examples of each.

> For purposes of the tax credit for child and dependent care expenses, explain the limitations concerning the amount of qualified expenses that can be used to calculate the credit.

> What is the “rule of thumb” noted in the text pertaining to the taxability of retirement plan distributions?

> What is the purpose of a retirement plan? Why does the government provide tax benefits to retirement plans?

> What are the differences between a traditional IRA and a Roth IRA regarding the deductibility of contributions, taxability of IRA earnings, and taxability of distributions?

> Lance is single and has a traditional IRA into which he has made deductible contributions for several years. This year he changed employers and is now an active participant in his employer’s pension plan. His AGI is $95,000. He wants to make a nondedu

> April, who is under age 50, is considering investing in tax-free state government bonds or making a permitted tax-deductible contribution to a traditional IRA. Assume that the amounts are the same for either alternative and that she can reinvest the int

> Under what circumstances is it advantageous for a taxpayer to make a nondeductible contribution to a traditional IRA rather than a contribution to a Roth IRA?

> Use the same information as in Problem 52. Answer the questions indicated, assuming that Ken is considering a SIMPLE plan. Data from question 52: Ken is a self-employed architect in a small firm with four employees: himself, his office assistant, and

> Ken is a self-employed architect in a small firm with four employees: himself, his office assistant, and two drafters, all of whom have worked for Ken full-time for the last four years. The office assistant earns $30,000 per year and each drafter earns

> Determine the maximum contribution that can be made to a Keogh plan in each of the following cases. In all instances, the individual is self-employed, and the self-employment tax reduction has already been taken. a) Self-employment income of $46,000. b

> Cornell Company is considering the establishment of a pension plan. The proposed plan has the following features: Contributions for employees earning less than $100,000 will be based on 3% of salary, while contributions for those earning over $100,000

> Determine the tax-free amount of the monthly payment in each of the following instances. a. Person A is age 57 and purchased an annuity for $82,000. The annuity pays $600 per month for life. b. Person B is 73 and purchased an annuity for $80,000. Th

> Pablo and his wife Bernita are both age 45. Their combined AGI is $90,000. Neither is a participant in an employer-sponsored retirement plan. They have been contributing to a traditional IRA for many years and have built up an IRA balance of $120,000.

> Using the simplified method, determine the tax-free amount of the following distributions from a qualified pension plan. Contributions, if any, are made with previously-taxed dollars. a. Person A, age 59, made no contributions to the pension plan and w

> Will, who is single and under age 50, is employed as a full-time tax accountant at a local manufacturing company where he earns $73,000 per year. He participates in a pension plan through his employer. Will also operates a small tax practice in his spa

> Jenna paid foreign income tax of $1,326 on foreign income of $8,112. Her worldwide taxable income was $91,400, and her U.S. tax liability was $23,000. What is the amount of foreign tax credit (FTC) allowed? What would be the allowed FTC if Jenna had p

> Use the information in Problem 51. What education tax credits are available if Walt and Deloris report modified AGI of $115,300? Does your answer change if Tiffany is taking one class a semester (is less than a half-time student) and not taking classes

> Walt and Deloris have two dependent children, Bill and Tiffany. Bill is a freshman at State University and Tiffany is working on her graduate degree. The couple paid qualified expenses of $3,900 for Bill (who is a half-time student) and $7,800 for Tiff

> In each of the following cases, certain qualifying education expenses were paid during the tax year for individuals who were the taxpayer, spouse, or dependent. The taxpayer has a tax liability and no other credits. Determine the amount of American opp

> Assuming that an AGI limitation does not apply, what amounts of credit for the elderly or the disabled would be permitted in each of the instances in Problem 48? Data from Question 48: What is the AGI limit above which each the following taxpayers wou

> Adrienne is a single mother with a 6-year-old daughter who lived with her during the entire year. Adrienne paid $2,900 in child care expenses so that she would be able to work. Of this amount, $500 was paid to Adrienne’s mother whom Adrienne cannot cla

> Casper used the following assets in his Schedule C trade or business in the tax year 2017: Asset Date Purchased Date Sold Business Use Percentage Cost  Computer 1 03/12/14  100% $3,000  Computer 2 05/05/14 05/15/17 100% $2,500  Print

> Niles and Marsha adopted an infant boy (a U.S. citizen). They paid $14,500 in 2016 for adoption-related expenses. The adoption was finalized in early 2017. Marsha received $3,000 of employer-provided adoption benefits. For question (a) assume that any

> Eric, who is single, participates in an activity that is appropriately classified as a hobby. The activity produces the following revenue and expenses: Revenue………………………………………………………..$12,000 Property taxes …………………………………………………..2,000 Materials and suppli

> Rebecca is a doctor with an AGI of $125,000 before consideration of income or loss from her dog breeding business. Her home is on 15 acres, 10 of which she uses to house the animals and provide them with ample space to play and exercise. Her records sh

> Derrick owns a farm in eastern North Carolina. A hurricane hit the area and destroyed a farm building and some farm equipment and damaged a barn. Item Adjusted Basis FMV before Damage FMV after Damage Insurance Proceeds  Building $85,000 $115,

> Ramon received a gift of stock from his uncle. The basis of the stock to his uncle was $25,000, and it had a FMV of $18,000 at the date of the gift. The donor held the property for more than one year. Complete the following chart under the independent

> Jose purchased a vehicle for business and personal use. In 2017 he used the vehicle 18,000 miles (80%) for business and calculated his vehicle expenses using the standard mileage rate (mileage was incurred ratably throughout the year). He paid $1,400 in

> In 2015 Jessica bought a new heavy truck for $45,000 to use 80% for her sole proprietorship. Total miles driven include 12,000 in 2015, 14,500 in 2016, and 13,000 in 2017. a. If Jessica uses the standard mileage method, how much may she deduct on her 2

> During 2017, Roberto sold 830 shares of Casual Investor Mutual fund for $8.875 per share. The shares were purchased on the following dates: Date Shares Price  May 31, 2013 400 $9.375  September 18, 2014 225 $8.500  October 21, 2014 425 $

> Lois purchased the following blocks of Westgate Stock: Date Shares Price  June 12, 2014 1,000 $4.225  October 21, 2014 2,000 $4.775  December 18, 2016 1,500 $5.500   Lois sold 1,600 shares of the stock on November 20, 2017 for $5.00 per