TAx problems

$126.00

Description

1.In 2014, KAKA invested $40,000 in a cattle-feeding partnership that used nonrecourse notes to purchase $30,000 of feed, which was used to feed the cattle and expensed.

If KAKA’s share of the expense was $50,000, what is the most that KAKA can deduct in 2014?

a. $10,000

b. $30,000

c. $40,000

d. $50,000

2.DJ, a corporate executive, exercised an incentive stock option (“ISO”) granted by DJ’s employer to purchase 10,000 shares of the corporation’s stock at the option price of $1 per share (i.e., the exercise price was $1 per share).

The stock is freely transferable. At the time the option was exercised, the stock was selling for $51 per share.

What is the AMT adjustment that results from DJs exercising the ISO (assume that DJ will NOT dispose of any of the stock during the year)?

a. $0

b. $10,000

c. $500,000

d. $510,000

3.JENNY, a single parent, lives in an apartment with JENNY’s TWO minor children each under age 11, whom JENNY supports.

For 2014, JENNY will have AGI and earned income of $19,000. Calculate the amount, if any, of JENNY’s earned income credit.

a. $5,460

b. $5,214

c. $2,000

d. $0

4.James and Analeyda are married and file a joint return. In 2014, Analeyda worked fulltime and earned $19,000, while James worked fulltime and earned $21,000. Assume their 2014 AGI equaled $40,000.

Assume they incurred $11,000 of child care expenses during 2014 for their THREE dependent children Catherine, Mairovis and Maidelin (who are 2, 4 and 6 years old, respectively). What is their child and dependent care CREDIT amount?

a. $1,320

b. $3,000

c. $6,000

d. $11,000

5.In 2007, Freda received stock from Eva worth $20,000 at the time of the GIFT. At the time of the gift, Eva’s adjusted basis in the stock was $30,000

What is the gain or loss that Freda should report for 2014 if she sold the stock to Valerie in 2014 for $45,000 (ignore any gift tax that may have been paid on the transfer from Eva to Freda)?

a. There is no gain or loss

b. $45,000 gain

c. $25,000 gain

d. $15,000 gain

6.Now, assume that in the previous question Freda sold the stock to Valerie for $5,000 (instead of $45,000). What is the gain or loss that Freda should report (again, ignore any gift tax that may have been paid on the transfer from Eva to Freda)?

a. There is no gain or loss

b. $5,000 gain

c. $15,000 loss

d. $25,000 loss

7.Now, assume that in Question 5 Freda sold the stock to Valerie for $25,000 (instead of $45,000). What is the gain or loss that Freda realized on the sale to Valerie (again, ignore any gift tax that may have been paid on the transfer from Eva to Freda)?

a. There is no gain or loss

b. $5,000 loss

c. $5,000 gain

d. $25,000 gain

8.KAKA traded in office equipment with an adjusted basis of $10,000 (and value of $25,000) for other (like-kind) office equipment then valued at $15,000. KAKA alsoreceived$10,000 in cash as part of the deal.

What was KAKArecognizedgain on the exchange, if any?

a. $0

b. $10,000

c. $15,000

d. $25,000

9.KAKA traded in computer equipment with an adjusted basis of $22,000 (and a value of $22,000) for other (like-kind) computer equipment then valued at $12,000. KAKA alsoreceived$10,000 in cash as part of the deal. What was KAKArealizedgain on the exchange, if any?

a. $0

b. $10,000

c. $12,000

d. $22,000

10.In 2014, Tana and Danny sold a house to Babajide for $850,000. Prior the 2014 sale, neither Tana nor Danny had ever excluded a gain from the sale of a personal residence. Tana and Danny had lived in the house for the lastfive yearsand used it exclusively for personal purposes. Tana and Danny had purchased the house for $250,000. Tana and Danny started living in the house immediately after purchasing it and never made any capital improvements to the house or took any depreciation (or other deductions) against it. Assume there were no selling expenses. How much of a gain did Tana and Dannyrealizeon the sale to Babajide (assume that Tana and Danny are married and file a joint return)?

a. $850,000

b. $600,000

c. $50,000

d. $0

11.Assume the facts stated in the previous question. How much of a gain must Tana and Dannyrecognizeon the sale to Babajide?

a. $850,000

b. $600,000

c. $50,000

d. $0

12.In 2014, Estela will have taxable income of approximately $40,000. In 2014, Estela will also have a long-term capital loss of $14,000. Estela has no other capital gains or losses (in 2014 or prior years). For 2014, what is the maximum capital loss amount that Estela may use to offset her other income?

a. $0

b. $3,000

c. $11,000

d. $14,000

13.Assume the facts stated in the prior question. Assume further that for 2014 Estela offset her wages (with her capital loss) to the maximum extent permitted by law. What is the amount of Estela’s capital loss carryover to 2015?

a. $0

b. $3,000

c. $11,000

d. $14,000

14.JAVA is a single taxpayer in the 35% tax bracket. JAVA wants to minimize her 2014 tax liability. Which of the following provides the LARGEST tax benefit to JAVA (assume that she may legally take advantage of each item in its entirety for 2014)?

a. A $5,000 deduction from adjusted gross income

b. A $10,000 deduction from gross income

c. A $1,000 tax credit

d. Options “b” and “c” would provide the same amount of tax benefit

15.What was the MAXIMUM EARNED INCOME CREDIT amount that Christopher

and Ellice could possibly take for 2014? Assume they are U.S. taxpayers filing a joint return with ONE qualifying child.

a. $0

b. $1,000

c. $3,000

d. $3,305

16.Which item MOST resembles an interest freeloanfrom the U.S. government?

a. The American Opportunity tax credit

b. The earned income credit

c. The child tax credit

d. First-time homebuyer credit for a closing that occurred in June of 2008

17.In early 2014, ANN sold her personal residence to Myrtho for $500,000. At the time of the sale, ANN’s adjusted basis was $200,000. Within three months of the sale, Amy moved into a new residence she purchased for $600,000. What is ANN basis in hernewresidence?

a. $200,000

b. $300,000

c. $550,000

d. $600,000

18.Which of the following is TRUE?

a. When compared to deferrals, exclusions are more permanent in nature

b. Section 1031 provides for an elective deferral upon certain exchanges

c. When compared to exclusions, deferrals are more permanent in nature

d. All of the above

19.GANDOO business property (located in JAWA County) was condemned by the proper local authorities. Immediately before the condemnation, the property had a fair market value of $400,000 and GANDOO adjusted basis in the property was $200,000. The local authorities replaced GANDOO condemned property with similar JAWA County property having a fair market value of $300,000. What is GANDOOsrealizedgain or loss relating to these matters?

a. $0

b. Gain of $300,000

c. Gain of $100,000

d. Loss of $100,000

20.Assume the facts stated in the prior question. What is GANDOOrecognizedgain or loss relating to such matters?

a. $0

b. Gain of $300,000

c. Gain of $100,000

d. Loss of $100,000

21.Assume the facts stated in the prior two questions. What is GANDOO basis in the JAWA County property she received as a result of the condemnation (i.e., what is Catherine’s basis in thenewly acquiredproperty)?

a. $0

b. $200,000

c. $300,000

d. $400,000

22.In 2014, Mairovis and Kevin sold a house to Jose for $700,000. Mairovis and Kevin had purchased the house for $800,000 in 2005 (during the real estate boom). Mairovis and Kevin started living in the house immediately after purchasing it and never made any capital improvements to it or took any depreciation (or other deductions) against it. Assume there were no selling expenses. How much of a LOSS may Mairovis and Kevinrecognizeon the sale to Jose (assume that Mairovis and Kevin are married and file a joint return and itemize deductions)?

a. $100,000

b. $100,000 less 10% of their AGI

c. $99,900 less 10% of their AGI

d. $0

23.Santosh purchased land for $70,000 in 1988. The land was valued at $1,000,000 on June 1, 2014, when Santosh died. Santosh’s relative Jean inherited the land. What basis would Jean have in the land as a result of the inheritance?

a. $0

b. $70,000

c. $1,000,000

d. Santosh’s adjusted basis on June 1, 2014 (if different than $70,000)

24.Assume the same facts stated in the previous question. Which of the following is most likely TRUE, if Jean sold the land in September 2014 for $1,200,000?

a. Jean’s 2014 gain is short-term

b. Jean’s 2014 gain is long-term

c. In 2014, Jean should “recapture” any depreciation previously taken by Santosh on the land

d. In 2014, Jean will be taxed on the appreciation that occurred while Santosh held the land (provided that such appreciation was previously not taxed)

25.Which of the following statements is most likely TRUE for Joel (a typical individual taxpayer in the 35% tax bracket)?

a. Joel usually prefers ordinary losses to capital losses

b. Joel usually prefers ordinary income to long-term capital gains

c. Joel usually prefers a $200 credit to a $1,000 deduction

d. Both “a” and “b” are correct

26.JOHN, who owns and operates an ICE CREAM SHOP as a sole proprietor, has the following property:

• STOCKS held for Matthew’s investment

• Elaborate ice cream making EQUIPMENT that was inherited from Maidelin

(Matthew’s grandmother) (it is used exclusively in the ICE CREAM SHOP)

• CHAIRS that are used exclusively in Matthew’s home

• a COMPUTER used exclusively in the ICE CREAM SHOP

Considering the above items, which option below lists the capital asset(s) under Section 1221?

a. Only the STOCKS

b. Only the STOCKS & CHAIRS

c. Only the EQUIPMENT, CHAIRS & COMPUTER

d. Each of the above assets is a capital asset under Section 1221

27.JANA recently purchased a piece of land, a building and a truck for a lump sum of $1,000,000. The fair market value of the land was $500,000, the fair market value of the building was $650,000, and the fair market value of the truck was $50,000. What is Obaku’s basis in the TRUCK?

a. $0

b. $41,667

c. $50,000

d. $333,333

28.On September 1, 2001, Jose paid $550 for 1,000 shares of TXX-5761 Inc. common stock. On August 13, 2014, Jose received anontaxable10% common stock dividend (i.e., 100 additional shares of identical common stock). On August 13, 2014, TXX5761 Inc. the common stock was trading on the market for $10 a share. On October 15, 2014, Jose sold the 100 shares he received on August 13, 2014 to Joel. What is thebasisof the 100 shares Jose sold to Joel?

a. $1,000

b. $55

c. $50

d. $0

29.Refer to the facts stated in the prior question. Any gain resulting from the October 15, 2014 sale to Joel will most likely be:

a. Short-term

b. Long-term

c. Both short-term and long-term

d. Neither short-term nor long-term

30.In 2014, SANA sold a piece of equipment from SANAS business for $400,000. The equipment was purchased in 2010 for $240,000. Assume total of $168,000 depreciation was taken (prior to the sale). What is SANAS’srecognizedgain on the sale?

a. $400,000

b. $328,000

c. $168,000

d. $160,000

31.Refer to the facts stated in the prior question. What amount of the gain (at least) will be recaptured at SANAS’s ordinary income rate?

a. $400,000

b. $328,000

c. $168,000

d. $160,000

32.Refer to the facts stated in the prior two questions. What amount of the gain will be treated as Section 1231 gain and (possibly) taxed at the long-term capital gain rate?

a. $400,000

b. $328,000

c. $168,000

d. $160,000

33.Which of the following is most likely Section 1245 property (assume that each item has been held long-term and is used in a trade or business)?

a. Office Equipment

b. Inventory

c. Office Building

d. Land

34.Which of the following would MOST LIKELY require an adjustment for the alternative minimum tax?

a. A gambling loss

b. A charitable contribution deduction

c. A deduction for state income taxes

d. Each of the above items requires an adjustment for the alternative minimum tax

35.Which of the following is most likely Section 1231 property (assume that each item has been held long-term and is used in a trade or business)?

a. Section 1250 property

b. Section 1245 property

c. Land

d. Each of the above items is Section 1231 property

36.Danny was at risk for $40,000 in Partnership X and $30,000 in Partnership Z on

January 1, 2014. Both partnerships are passive activities to Danny (these are

Danny’s only passive activities). Danny’s share of net income from Partnership X during 2014 is $10,000. Danny’s share of losses from Partnership Z during 2014 is $50,000. How much is Dannyat riskfor Partnership X on January 1, 2015?

a. $50,000

b. $40,000

c. $10,000

d. $0

37.Refer to the facts in the previous question. How much is Dannyat riskfor Partnership Z on January 1, 2015a.$80,000

b. $50,000

c. $20,000

d. $0

38.Refer to the facts in the previous questions. What is Danny’scarryover under theat-risk rulesfor Partnership Z in 2014?

a. $80,000

b. $50,000

c. $20,000

d. $0

39.Refer to the facts in the previous question. What is Danny’sdeductible lossfor Partnership Z in 2014?

a. $50,000

b. $30,000

c. $10,000

d. $0

40.Refer to the facts in the previous question. What is Danny’ssuspended loss underthepassive loss rulesfor Partnership Z in 2014?

a. $50,000

b. $30,000

c. $20,000

d. $0

41.In 2014, Jeanette invested in the ANALEYDA Limited Partnership (“ANALEYDA L.P.”) by paying $70,000 cash and contributing additional assets worth $10,000 (and having a basis equal to $5,000 on the date of the contribution). What amount did

Jeanette have at risk in ANALEYDA L.P. as of January 1, 2015, if ANALEYDA

L.P. broke even in 2014 (i.e., if ANALEYDA L.P. had no income or loss in 2014)?

a. $5,000

b. $70,000

c. $75,000

d. $80,000

42.Refer to the facts stated in the prior question. But, for this question, assume that

ANALEYDA L.P. allocated to Jeanette net income of $20,000 from operations in 2014. What amount does Jeanette have at risk in ANALEYDA L.P. as of January 1, 2015?

a. $25,000

b. $55,000

c. $95,000

d. $100,000

43.In 2014, Tana and Kevin (who file a joint return) had an interest expense of $6,000 on a loan that was used to purchase a variety of stock and bonds (all producing taxable income). Assume further that, in 2014, Tana and Kevin had net investment income of $4,000. Assume they itemize deductions, what is their maximum interest expense deduction in 2014?

a. $6,000

b. $4,000

c. $3,000

d. $0

44.Assume that Christopher and Eva file a joint return and have the following items for 2014:

Taxable income: $75,000

Positive adjustments: $30,000

Preferences: $45,000

Regular tax ability: $10,463

What was their 2014 AMT?

a. $17,654

b. $10,463

c. $7,191

d. $0

45.Assume that a couple that filed a joint return had 2014 AMTI of $375,000. What was the amount of their actual 2014 exemption for the AMT?

a. $0

b. $7,900 (i.e., $3,950 x 2)

c. $27,475

d. $82,100

46.GANDOO is negotiating to buy land from JAVA. What will GANDOO basis be in the land, if GANDOO gives JAVA $100,000 and GANDOO assumes JAVA mortgage on the land of $30,000?

a. $130,000

b. $100,000

c. $70,000

d. $30,000

47.Which of the following is LEAST likely to qualify as a like-kind exchange under Section 1031 (assume all of the assets are used for business)?

a. Improved real estate for computer equipment

b. Improved real estate for unimproved real estate

c. Office building for a warehouse

d. Office furniture for office equipment

48.Valerie exchangesundevelopedreal estate fordevelopedreal estate on July 30, 2014. On July 30, 2014, the fair market value of each property is $500,000. Valerie had purchased the undeveloped real estate on February 14, 2004, for $300,000. Both properties are considered investment property for Valerie. Which of the following is

FALSE?

a. Valerie will realize a gain of $200,000 from the July 30, 2014 transaction

b. Valerie will recognize a gain of $200,000 from the July 30, 2014 transaction

c. Valerie’s basis in the developed real estate is $300,000

d. If Valerie sells the developed real estate in June of 2015 for a gain, the gain will most likely be treated as a long-term gain

49.In October 2014, JAVA purchased a playground set at a garage sale for $100. JAVA is not in the business of buying and selling anything. JAVA researched the playground set online and discovered it was worth $700. In November 2014, JAVA sold the playground set through an auction website for that amount (i.e., $700). Which of the following is TRUE considering these transactions?

a. JAVA does not have any income

b. Had JAVA sold the playground set for $25, JAVA could have deducted a $75 ordinary loss

c. JAVA has a $600 short-term capital gain

d. JAVA has a $600 long-term capital gain

50.JAVA had the following net Section 1231 results for each of the years shown below.

Tax Year

Net Section 1231 LOSS

Net Section 1231 GAIN

2009

$0

$0

2010

$0

$0

2011

$0

$0

2012

$5,000

2013

$15,000

2014

$30,000

Which of the following is TRUE regarding the net Section 1231 gain in2014?

a. Only $10,000 of the $30,000 will be taxed at JAVA ordinary income rate

b. Only $20,000 of the $30,000 will be taxed at JAVA ordinary income rate

c. All $30,000 will all be taxed at JAVA ordinary income rate

d. All $30,000 will all be taxed at JAVA long-term capital gain rate

Reviews

There are no reviews yet.

Be the first to review “TAx problems”

Your email address will not be published. Required fields are marked *

TAx problems

$38.00

Description

1. When does a child no longer qualify a taxpayer for the Child Tax Credit?

The year the child reaches age 17.

The year the child reaches majority, which is 18 in most states.

The year the child reaches age 19.

The year the child reaches age 19, or age 24 if the child is a full-time student at least five months of the year.

2. Which one of the following statements is true about alimony?

Couples may live together while one pays the other alimony and it is still considered alimony.

Alimony payments can be continued to be paid beyond the death of the recipient and still be deductible.

Child support is equivalent to alimony payments.

Alimony must be paid in cash. Checks and money orders qualify as cash.

3. Which one of the following types of income IS included in federal gross income?

Federal income tax refund.

Checking account interest.

Personal injury compensation.

Qualified disaster relief payments.

4. Which one of the following items is deductible on Schedule A?

U.S. federal income taxes withheld.

Charitable contributions.

Personal credit card interest.

Will preparation fees.

5. John is a married taxpayer who has lived apart from his wife Mary for more than three years. John has no qualifying children or qualifying relatives. He no longer knows the whereabouts of his spouse. John must file:

Married filing jointly.

Qualified widow(er).

Single.

Married filing separately.

6. The maximum Child Tax Credit is $1,000 per qualifying child. What two situations may limit taxpayers from receiving the full amount?

Tax liability and earned income above the phase-out thresholds for three or more children.

Earned income above the phase-out thresholds and taxpayer filing status.

Tax liability and modified AGI above the phase-out thresholds.

Modified AGI above the phase-out thresholds and three or more children.

7. Taxpayers without a qualifying child must meet additional requirements to claim the EIC. All of the following are additional requirements EXCEPT:

The taxpayer must reside in the U.S. more than half the year.

The taxpayer cannot be the dependent of another taxpayer.

The taxpayer must earn their income as an employee. They cannot be self-employed.

The taxpayer must be between the ages of 25 and 65.

8. All of the following are requirements to claim EIC, EXCEPT:

The taxpayer must have earned income.

The taxpayer must be a U.S. citizen.

The taxpayer must have a valid SSN for employment in the U.S.

The taxpayer must file a tax return, even if not required.

9. What first triggers the calculation of the additional Child Tax Credit?

Due to tax liability limits, the taxpayer did not receive the maximum Child Tax Credit for which they were eligible.

More than two children lived with the taxpayer.

The taxpayer’s modified AGI was more than 15% over the threshold.

The taxpayer’s modified AGI exceeds $11,500 in 2013.

10. Which of the following is NOT earned compensation for IRA contribution purposes?

Deferred compensation.

Wages and salaries.

Self-employment income.

Commissions.

11. Which of the following taxpayers is an eligible student for purposes of the tuition and fees deduction?

Nancy is taking the H&R Block Income Tax Course.

Sheila is taking an HTML class at her local community center.

Sarah is enrolled in two Psychology classes at Your State University.

Cynthia has a Master’s Degree in Accounting. She is taking a self-defense class at her local community center.

12. If an amended return is based on a non-business bad debt or worthless security, how many years (from the original due date of the return) does a taxpayer generally have to file the amended return?

4 years.

5 years.

6 years.

7 years.

13. Akil is a citizen of Belize and is attending State University. She worked part time and received a Form W-2. In 2011, she filed a Form 1040. She is a non-resident alien and will need to file an amended return. Which form(s) should Akil use?

Form 1040X and Form 1040NR.

Form 1040EZ only.

Form 1040NR only.

Form 1040X only.

14. Which of the following clients is insolvent?

Portia, who owns assets with a fair market value of $4,000 and has total liabilities of $5,000.

Juan, who owns assets with a fair market value of $10,000, has liabilities of $10,000, and retired last year.

Graham, who owns no assets, is unemployed, and has no liabilities.

Heather, who owns assets with a fair market value of $7,500 and has no liabilities.

15. When a taxpayer receives Form 1099-A for the repossession of a house, how is it treated?

As an involuntary conversion.

As a sale of the home.

Both A and B.

None of these.

16. Property, such as land, buildings, and their structural components, are called:

Real property.

Residential property.

Nonresidential property.

Personal property.

17. For a child to qualify for the “kiddie tax” rule, which statement below is not a true statement?

For a child to qualify for the “kiddie tax” rule, which statement below is not a true statement?

The child must not have attained age 24 in the tax year.

The child must have two living parents.

The child must have more than $1,900 investment income.

The child must have at least one living parent.

18. For children to be subject to the “kiddie tax” rule, which of the following statements must be true?

The child must have more than $2,000 investment income.

The child must not have attained age 24 in the tax year.

The child must have at least one living parent.

All of these must be true.

19. Which property is subject to depreciation?

The cars on the lot of an auto dealership.

A duplex that was purchased to use as rental property.

The fair market value of the land where the duplex sits.

A four-wheeler purchased for personal use.

20. Johnni placed the following items in service during 2013: 1) February 3 – a $2,000 machine (7-year property); 2) June 16 – a $1,500 desk (7-year property); and 3) November 10 – a $5,000 computer system (5-year property). No §179 expense deduction was taken. No bonus depreciation was taken. What is the 2013 depreciation for the machine?

$71

$286

$400

$500

21. Which property is subject to depreciation?

A computer used exclusively for business purposes.

A new oven in the taxpayer’s home. The oven is used only for personal use by the taxpayer and family.

A lawn tractor used only to mow the taxpayer’s lawn.

Business inventory.

22. What EITC Due Diligence question must you ask if the taxpayer wishes to claim a dependent who is not their son or daughter?

Are the dependent’s parents still living?

If the dependent’s parents are living, why isn’t the dependent living with the parents?

Where are the dependent’s parents living?

All of these are required.

23. Celia’s spouse died in 2013. Her filing status option for that year is:

Married filing jointly or married filing separately.

Qualifying widow.

Single.

Head of household.

24. A person with an ITIN may file which of the following?

Form 1040.

Form 1040NR.

Form 1040ES.

Any of these forms.

25. Which of the following is CORRECT regarding the tiebreaker rules for a qualifying child?

The parent who has the higher AGI has the higher right, regardless of which parent the child lived with longer.

If neither claimant is a parent, the one who lived with the child longer has the higher right.

The parent who provided more support for the child has the higher right, regardless of AGI.

The parent who lived with the child longer has the higher right, regardless of AGI.

26. Interest income from which of the following institutions can be called a dividend?

Credit unions.

Cooperative banks.

Mutual savings banks.

All of the above.

27. When a bond is sold between interest dates, on whose tax return is the adjustment for accrued interest shown?

The seller’s tax return.

The buyer’s tax return.

Neither the buyer’s nor the seller’s tax return.

Both the buyer’s and the seller’s tax return.

28. Which one of the following items is deductible on Schedule A?

U.S. federal income taxes withheld.

Charitable contributions.

Personal credit card interest.

Will preparation fees.

29. Which one of the following items IS taxable income on the federal return?

Interest from municipal bonds.

Gambling winnings.

Life insurance proceeds paid due to the death of the insured.

30. All of the following non-dependent taxpayers are U.S. citizens. Who is required to file a 2013 income tax return?

April (age 50), QW, $16,500 AGI.

Frank (age 32), HH, $10,500 AGI.

Charity (age 29), S, $7,500 AGI.

Sam (age 62), MFS, $500 AGI, and spouse does not itemize.

31. Which one of the following types of income IS included in federal gross income?

Federal income tax refund.

Checking account interest.

Personal injury compensation.

Qualified disaster relief payments.

32. All of the following are requirements to claim EIC, EXCEPT:

The taxpayer must have earned income.

The taxpayer must be a U.S. citizen.

The taxpayer must have a valid SSN for employment in the U.S.

The taxpayer must file a tax return, even if not required.

33. What first triggers the calculation of the additional Child Tax Credit?

Due to tax liability limits, the taxpayer did not receive the maximum Child Tax Credit for which they were eligible.

More than two children lived with the taxpayer.

The taxpayer’s modified AGI was more than 15% over the threshold.

The taxpayer’s modified AGI exceeds $11,500 in 2013

34. Taxpayers without a qualifying child must meet additional requirements to claim the EIC. All of the following are additional requirements EXCEPT:

The taxpayer must reside in the U.S. more than half the year.

The taxpayer cannot be the dependent of another taxpayer.

The taxpayer must earn their income as an employee. They cannot be self-employed.

The taxpayer must be between the ages of 25 and 65.

35. Which of the following is an INCORRECT statement about the child and dependent care credit?

For a married couple to claim the credit, each must work, be looking for work, or be enrolled as full-time students, or the spouse must be physically or mentally incapable of self-care.

Taxpayers may claim the credit for the care of certain disabled adult children who live in the house.

Taxpayers may claim the credit for care of a disabled spouse.

The credit phases out when a taxpayer’s AGI crosses a certain threshold.

36. In 2013, an eligible educator may deduct up to _____ of qualified expenses paid as an adjustment to income on Form 1040, line 23 (or Form 1040A, line 16).

$850

$500

$350

$250

37. Which of the following taxpayers is an eligible student for purposes of the tuition and fees deduction?

Nancy is taking the H&R Block Income Tax Course.

Sheila is taking an HTML class at her local community center.

Sarah is enrolled in two Psychology classes at Your State University.

Cynthia has a Master’s Degree in Accounting. She is taking a self-defense class at her local community center.

38. Which of the following amended returns is NOT allowed after the due date of the original return?

Claiming an EIC that was not claimed on the original return.

Claiming a Child and Dependent Care Credit that was not on the original return.

Changing from a Form 1040 to a Form 1040NR.

Changing from “married-filing-jointly” to “married-filing-separately”.

39. If an amended return is based on a non-business bad debt or worthless security, how many years (from the original due date of the return) does a taxpayer generally have to file the amended return?

4 years.

5 years.

6 years.

7 years.

40. Income may be recognized from cancellation of debt in which instance below?

The debt canceled from the mortgage on a taxpayer’s second home.

The debt canceled by a purchase price reduction on the sale of a home.

The debt was canceled through a bankruptcy.

The debt canceled was intended as a gift.

41. To what extent is debt canceled in personal bankruptcy taxable as cancellation of debt income?

Unsecured debt that is canceled in bankruptcy is taxable as income.

All canceled debt, except that related to real property, is taxable.

Debt canceled in a bankruptcy proceeding is not taxable as cancellation of debt income.

Only secured debt in excess of the fair market value of the collateral is taxable as income.

42. Property, such as land, buildings, and their structural components, are called:

Real property.

Residential property.

Nonresidential property.

Personal property.

43. For children to be subject to the “kiddie tax” rule, which of the following statements must be true?

The child must have more than $2,000 investment income.

The child must not have attained age 24 in the tax year.

The child must have at least one living parent.

All of these must be true.

44. Mike and Janet, married and filing jointly, lived in their home for two years. At the beginning of the third year, they sold their home at a profit of $650,000. How much of the profit can they exclude from taxable gain?

They can exclude $500,000.

They can exclude $250,000.

They can exclude somewhere between $250,000 and $500,000, depending on why they moved.

They have no exclusion since they did not own the home for five years.

45. Johnni placed the following items in service during 2013: 1) February 3 – a $2,000 machine (7-year property); 2) June 16 – a $1,500 desk (7-year property); and 3) November 10 – a $5,000 computer system (5-year property). No §179 expense deduction was taken. No bonus depreciation was taken. What is the 2013 depreciation for the machine?

$71

$286

$400

$500

46. Which property is subject to depreciation?

A computer used exclusively for business purposes.

A new oven in the taxpayer’s home. The oven is used only for personal use by the taxpayer and family.

A lawn tractor used only to mow the taxpayer’s lawn.

Business inventory.

47. Samantha purchased a machine in 2012 and used a §179 expense deduction. In 2013, business use dropped below 50%. As a result of this drop, Samantha must ___?

Stop taking any depreciation on the machine.

Change from the general MACRS to a straight-line system.

Recapture (add back into income) a prorated portion of that which was expensed.

Change nothing with depreciation on the return.

48. Taxpayers without a qualifying child must meet additional requirements to claim the EIC. All the following are additional requirements, EXCEPT:

The taxpayer must be between the ages of 25 and 65.

The taxpayer must not be the dependent of another taxpayer.

The taxpayer must earn their income as an employee. They cannot be self-employed.

The taxpayer must reside in the U.S. for more than half the year.

49. Which of the following items is included in support for a dependent?

Funeral expenses.

A manicure.

Amounts contributed to savings.

A college scholarship.

50. person with an ITIN may file which of the following?

Form 1040.

Form 1040NR.

Form 1040ES.

Any of these forms.

51. With respect to dependency, which of the following statements is NOT true?

The dependent generally cannot file a joint return.

The dependent must be a U.S. citizen or resident of the U.S., Canada, or Mexico.

A taxpayer who is a dependent of another taxpayer may not claim any dependents.

The individual must be raised as the taxpayer’s child

52. When a bond is sold between interest dates, on whose tax return is the adjustment for accrued interest shown?

The seller’s tax return.

The buyer’s tax return.

Neither the buyer’s nor the seller’s tax return.

Both the buyer’s and the seller’s tax return.

53. Bonds issued by a state or political subdivision are often called:

U.S. savings bonds

Municipal bonds

Treasury bonds

Series HH bonds

54. Where do you deduct expenses related to a rental property conducted as a not-for-profit activity?

The expenses are subtracted from gross rental income before entering net rental income on Form 1040, line 21.

Schedule E, line 19, other expenses.

Schedule A, line 23, other expenses.

Form 1040, line 36 as a manual entry “not-for-profit rental”.

55. What should a Tax Professional do if a client thinks the distribution code on Form 1099-R is incorrect?

Enter the distribution code the client thinks is correct in the tax preparation software and attach an e-note to the tax return explaining the correction.

Advise the client to contact the issuer of the Form 1099-R to obtain a corrected form.

Prepare an original tax return reporting the incorrect distribution code, and then immediately prepare an amended tax return with the correction and an explanation of the correction.

Prepare a paper tax return to be mailed in with a hand-corrected form and an explanation of the correction.

56. Which item is NOT permitted as a mortgage interest deduction on Schedule A?

Points paid to purchase a new home.

Mortgage interest paid on the taxpayer’s second home.

Mortgage interest paid on the taxpayer’s third home.

Late payment charges paid on the taxpayer’s new home.

57. Which of the following taxes paid could be deductible on the taxpayer’s 2013 Form 1040, Schedule A?

2013 fourth quarter estimated state income tax payment paid timely on January 15, 2014.

City tax balance due paid on November 15, 2013, for income earned in 2012.

Luxury tax in excess of the selective sales tax rate paid for a new car on February 12, 2013.

Employment tax for household workers paid February 10, 2013.

58. Which of the following items are deductible as a medical expense on Schedule A?

A walk-in shower for a handicapped individual, which increases the value of the home in excess of the cost of the improvement.

Insurance, which pays for lost wages when the beneficiary is disabled and unable to work.

Laser eye surgery undergone to avoid wearing glasses.

Over-the-counter birth control supplies.

59. Toby owns a duplex. He lives in the property and rents out the other half. Toby will report any income and expenses incurred on the half that is rented on which schedule?

Schedule E.

Schedule F.

Schedule D.

Schedule B.

60. Gregory owns a rental house, which he rents at $200 per month. Similar houses in the neighborhood rent for $600 per month. As Gregory’s Tax Professional, how should you treat his rental income?

The income is reported, and all expenses deducted, on Schedule E.

The income is not reported because Gregory is operating the property as a charity.

The income is reported on Form 1040, line 21, and rental expenses, up to the amount of income, are deducted on Schedule A.

A charitable contribution of $400 is reported on Schedule A for every month Gregory rents the property at $200.

61. Which of the following is NOT rental income?

Expenses paid by the tenant for their own enjoyment.

Forfeited security deposit.

Rental expenses directly paid by the tenant.

Advance rental payments.

62.

Income from rental real estate is generally considered to be:

Income from rental real estate is generally considered to be:

Active income.

Passive income.

Portfolio income.

Earned income.

63. Generally, a taxpayer may be subject to a 10% early distribution penalty from an IRA or 401(k), unless he or she has reached the age of:

50

59.5

65.5

67

64. The IRS may offset (apply) a taxpayer’s refund to which of the following types of debts?

Past-due child support.

Past-due car payments.

Past-due mortgage payments.

Past-due credit card accounts.

65. Nichole has operated a shoe store since 2004. In 2013, she began selling socks and handbags. How many Schedules C should Nichole file for 2013?

Zero.

One.

Two.

Three.

66. Chris is a self-employed certified financial planner and began his business in 2013. During 2013 he purchased a $500 computer and a $250 desk. He also paid $6,000 in legal/incorporation fees, and spent $12,000 for a new roof for the office building he owns. Which purchase(s) can he expense in 2013 without limitation?

Computer, desk, legal/incorporation fees, roof.

Computer, desk, legal/incorporation fees.

Computer, and desk.

Legal fees/incorporation fees, roof.

67. A taxpayer can be exempt from withholding when: A. Taxpayer had no federal tax liability in the preceding year. B. Taxpayer does not expect to have federal tax liability for the current year.

B only.

Neither A nor B.

A and B.

A only.

68. The cost basis of property includes which of the following items?

Settlement fees and other costs of purchase.

Sales tax charged on purchase of the property.

Unreimbursed real estate tax paid on the seller’s behalf.

All of the above.

69. The cost basis of rental property includes:

The cost basis of rental property includes:

Fees paid to the settlement attorney.

Recording fees and transfer taxes.

Real estate taxes paid on behalf of the seller without reimbursement.

All of the above.

70. Which statement about a qualifying child is true?

A child who is the qualifying child to one taxpayer may claim his or her own qualifying child.

A child may be a qualifying child to multiple taxpayers in the household.

A child may be claimed as a qualifying child by multiple taxpayers in the household.

A child who is a qualifying child to one taxpayer may be claimed as a qualifying relative by another taxpayer.

71. Which situation below qualifies a taxpayer to file as head of household?

A child not living in the household whose dependency exemption was released to the taxpayer.

A dependent brother who lived in the household almost half the year.

A dependent girlfriend who lived in the household all year.

A dependent nephew who lived in the household more than half the year.

72. Using the shell return, Diane M. Willsey (SSN###-##-#### ***** a travel agency. On September 3, 2012, she purchased and placed in service a new computer for $3,000 to be used exclusively at her place of business. Using the Depreciation Worksheet in TPS, compute the 2012 and 2013 computer depreciation. Diane did not take any §179 or bonus depreciation.

a. 2012 Depreciation = $600

2013 Depreciation = $600

b. 2012 Depreciation = $900

2013 Depreciation = $960

c. 2012 Depreciation = $690

d. 2013 Depreciation = $990

2012 Depreciation = $600

2013 Depreciation = $960

73. When entering assets on Schedule C in TPS, a computer that is used 30% of the time for business and 70% for personal use would use which property code from the list shown?

P-Personal Property

O-Other Listed Property

Z-Nonrecoverable Assets, Capitalized

R-Real Property

Reviews

There are no reviews yet.

Be the first to review “TAx problems”

Your email address will not be published. Required fields are marked *

tax problems

$21.00

Description

Comprehensive Problems

81.

Joe
operates a business that locates and purchases specialized assets for
clients, among other activities. Joe uses the accrual method of
accounting but he doesn’t keep any significant inventories of the
specialized assets that he sells. Joe reported the following financial
information for his business activities during year 0. Determine the
effect of each of the following transactions on the taxable business
income.

  1. Joe has signed a contract to sell gadgets to the
    city. The contract provides that sales of gadgets are dependent upon a
    test sample of gadgets operating successfully. In December, Joe delivers
    $12,000 worth of gadgets to the city that will be tested in March. Joe
    purchased the gadgets especially for this contract and paid $8,500.
  2. Joe
    paid $180 for entertaining a visiting out-of-town client. The client
    didn’t discuss business with Joe during this visit, but Joe wants to
    maintain good relations to encourage additional business next year.
  3. On
    November 1, Joe paid $600 for premiums providing for $40,000 of “key
    man” insurance on the life of Joe’s accountant over the next 12 months.
  4. At
    the end of the year (year 1), Joe’s business reports $9,000 of accounts
    receivable. Based upon past experience, Joe believes that at least
    $2,000 of his new receivables will be uncollectible.
  5. In December
    of year 0, Joe rented equipment for a large job. The rental agency
    required a minimum rental of three months ($1,000 per month), but Joe
    completed the job before year-end.
  6. Joe hired a new sales
    representative as an employee and sent her to Dallas for a week to
    contact prospective out-of-state clients. Joe ended up reimbursing his
    employee $300 for airfare, $350 for lodging, $250 for meals, and $150
    for entertainment. Joe requires the employee to account for all
    expenditures in order to be reimbursed.
  7. Joe uses his BMW (a
    personal auto) to travel to and from his residence to his factory.
    However, he switches to a business vehicle if he needs to travel after
    he reaches the factory. Last month, the business vehicle broke down and
    he was forced to use the BMW both to travel to and from the factory and
    to visit work sites. He drove 120 miles visiting work sites and 46 miles
    driving to and from the factory from his home.
  8. Joe paid a visit
    to his parents in Dallas over the Christmas holidays. While he was in
    the city, Joe spent $50 to attend a half-day business symposium. Joe
    paid $200 for airfare, $50 for meals during the symposium, and $20 on
    cab fare to the symposium.

82.

Jack,
a geologist, had been debating for years whether or not to venture out
on his own and operate his own business. He had developed a lot of solid
relationships with clients and he believed that many of them would
follow him if he were to leave his current employer. As part of a New
Year’s resolution, Jack decided he would finally do it. In January, Jack
put his business plan together and in February, opened his doors for
business as a C corporation called Geo-Jack (GJ). Jack is the sole
shareholder. Jack reported the following financial information for the
year (assume GJ reports on a calendar year and uses the accrual method
of accounting).

  1. GJ incurred $3,000 of organizational expenditures in January.
  2. GJ earned and collected $290,000 performing geological-related services and selling its specialized digging tool [see part (i)].
  3. GJ received $50 interest from municipal bonds and $2,100 interest from other investments.
  4. GJ
    purchased some new equipment in February for $42,500. It claimed
    depreciation on these assets during the year in the amount of $6,540.
  5. GJ paid $7,000 to buy luxury season tickets for Jack’s parents for State U football games.
  6. GJ
    paid Jack’s father $10,000 for services that would have cost no more
    than $6,000 if Jack had hired any other local business to perform the
    services. While Jack’s dad was competent, he does not command such a
    premium from his other clients.
  7. In an attempt to get his name and new business recognized, GJ paid $7,000 for a one-page ad in theGeologic Survey.It also paid $15,000 in radio ads to be run through the end of December.
  8. GJ leased office space in a building downtown. GJ paid rent of $27,000 for the year.
  9. In
    August, GJ began manufacturing a special geological digging tool that
    it sells to wholesalers. GJ’s QPAI from the activity for the year is
    $100,000 [included in revenues reported in part (b)]. GJ paid $10,000 of
    wages to the employees working on the project during the year and its
    cost of goods sold on the sales is $15,000. (Assume that taxable income
    does not limit the amount of the DMD, and that no wages should be
    included in cost of goods sold.) Remember that cost of goods sold and
    wages reduce taxable income.
  10. In November, Jack’s office was
    broken into and equipment valued at $5,000 was stolen. The tax basis of
    the equipment was $5,500. Jack received $2,000 of insurance proceeds
    from the theft.
  11. GJ incurred a $4,000 fine from the state government for digging in an unauthorized digging zone.
  12. GJ
    contributed $3,000 to lobbyists for their help in persuading the state
    government to authorize certain unauthorized digging zones.
  13. On
    July 1, GJ paid $1,800 for an 18-month insurance policy for its business
    equipment. The policy covers the period July 1, 2009 through December
    31, 2010.
  14. GJ borrowed $20,000 to help with the company’s initial
    funding needs. GJ used $2,000 of funds to invest in municipal bonds. At
    the end of the year, GJ paid the $1,200 of interest expense that
    accrued on the loan during the year.
  15. Jack lives 12 miles from
    the office. He carefully tracked his mileage and drove his truck 6,280
    miles between the office and his home. He also drove an additional 7,200
    miles between the office and traveling to client sites. Jack did not
    use the truck for any other purposes. He did not keep track of the
    specific expenses associated with the truck. However, while traveling to
    a client site, Jack received a $150 speeding ticket. GJ reimbursed Jack
    for business mileage and for the speeding ticket.
  16. GJ purchased
    two season tickets (20 games) to attend State U baseball games for a
    total of $1,100. Jack took existing and prospective clients to the games
    to maintain contact and find further work. This was very successful for
    Jack as GJ gained many new projects through substantial discussions
    with the clients following the games.
  17. GJ reimbursed employee-salespersons $3,500 for meals involving substantial business discussion.
  18. GJ
    had a client who needed Jack to perform work in Florida. Because Jack
    had never been to Florida before, he booked an extra day and night for
    sightseeing. Jack spent $400 for airfare and booked a hotel for 3 nights
    ($120/night). (Jack stayed two days for business purposes and one day
    for personal purposes.) He also rented a car for $45 per day. The client
    arranged for Jack’s meals while Jack was doing business. GJ reimbursed
    Jack for all expenses.

Required:

  1. What is GJ’s taxable income for the year?
  2. As a C corporation, does GJ have a required tax year? If so, what would it be?
  3. If GJ were a sole proprietorship, would it have a required tax year-end? If so, what would it be?
  4. If GJ were an S corporation, would it have a required tax year-end? If so, what would it be?

83.

Rex
loves to work with his hands and is very good at making small
figurines. In 2005, Rex opened Bronze Age Miniatures (BAM) for business
as a sole proprietorship. BAM produces miniature characters ranging from
sci-fi characters (his favorite) to historical characters like George
Washington (the most popular). Business has been going very well for
him—so well, in fact, that he has decided to hire you to determine his
business (Schedule C) income for this year. Rex provided the following
information relating to his business.

  1. Rex received approval
    from the IRS to switch from the cash method of accounting to the accrual
    method of accounting effective January 1 of this year. At year-end of
    last year, BAM reported accounts receivable that had not been included
    in income under the accrual method of $14,000 and accounts payable that
    had not been deducted under the accrual method of $5,000.
  2. In
    March, BAM sold 5,000 miniature historical figures to History R Us, Inc.
    (HRU), a retailer of historical artifacts and figurines, for $75,000.
  3. HRU
    was so impressed with the figurines that it purchased in March that it
    wanted to contract with BAM to continue to produce the figurines for
    them for the next three years. HRU paid BAM $216,000 ($12 per figurine)
    on October 30 of this year, to produce 500 figurines per month for 36
    months beginning on November 1 of this year. BAM delivered 500 figurines
    on November 30 and again on December 30. Rex elects to use the deferral
    method to account for the transaction.
  4. Though the sci-fi
    figurines were not quite as popular, BAM sold 400 figurines at a sci-fi
    convention in April. Rex accepted cash only and received $11,000 for
    these sales.
  5. In January, BAM determined that it would not be
    able to collect on $2,000 of its beginning-of-the-year receivables, so
    it wrote off $2,000 of specific receivables. BAM sold 100,000 other
    figurines on credit for $120,000. BAM estimates that it will be unable
    to collect 5 percent of the sales revenue from these sales but it has
    not been able to specifically identify any accounts to write off.
  6. Assume that BAM correctly determined that its cost of goods sold this year is $54,000.
  7. The
    sci-fi convention in April was held in Chicago, Illinois. Rex attended
    the convention because he felt it was a good opportunity to gain new
    customers and to get new ideas for figurines. He paid $350 round-trip
    airfare, $100 for entrance to the convention, $210 for lodging, $65 for
    cab fare, and $110 for meals during the trip. He was busy with business
    activities the entire trip.
  8. On August 1, BAM purchased a
    12-month insurance policy that covers its business property for
    accidents and casualties through July 31 of next year. The policy cost
    BAM $3,600.
  9. BAM reported depreciation expense of $8,200 for this year.
  10. Rex
    had previously operated his business out of his garage, but in January
    he decided to rent a larger space. He entered into a lease agreement on
    February 1 and paid $14,400 ($1,200 per month) to possess the space for
    the next 12 months (February of this year through January of next year).
  11. Before
    he opened his doors for business in 2005, Rex spent $30,000
    investigating and otherwise getting ready to do business. He expensed
    $5,000 immediately and is amortizing the remainder using the
    straight-line method over 180 months.
  12. In December, BAM agreed to
    a 12-month $8,000 contract with Advertise-With-Us (AWU) to produce a
    radio ad campaign. BAM paid $3,000 up front (in December of this year)
    and AWU agreed that BAM would owe the remaining $5,000 only if BAM’s
    sales increased by 15 percent over the nine-month period after the
    contract was signed.
  13. In November of this year, BAM paid $2,500
    in business property taxes (based on asset values) covering the period
    December 1 of this year through November 30 of next year. In November of
    last year, BAM paid $1,500 for business property taxes (based on asset
    values) covering the period December 1 of last year through November 30
    of this year.

Required:

  1. Compute BAM’s business income.
  2. Complete a Schedule C for BAM (page 1 only).

84.

Bryan
followed in his father’s footsteps and entered into the carpet
business. He owns and operates I Do Carpet (IDC). Bryan prefers to
install carpet only, but in order to earn additional revenue, he also
cleans carpets and sells carpet cleaning supplies. Compute his taxable
income considering the following items:

  1. IDC contracted with a
    homebuilder in December of last year to install carpet in 10 new homes
    being built. The contract price of $80,000 includes $50,000 for
    materials (carpet). The remaining $30,000 is for IDC’s service of
    installing the carpet. The contract also stated that all money was to be
    paid upfront. The homebuilder paid IDC in full on December 28 of last
    year. The contract required IDC to complete the work by January 31 of
    this year. Bryan purchased the necessary carpet on January 2 and began
    working on the first home January 4. He completed the last home on
    January 27 of this year.
  2. IDC entered into several other
    contracts this year and completed the work before year-end. The work
    cost $130,000 in materials. Bryan billed out $240,000 but only collected
    $220,000 by year-end. Of the $20,000 still owed to him, Bryan wrote off
    $3,000 he didn’t expect to collect as a bad debt from a customer
    experiencing extreme financial difficulties.
  3. IDC entered into a
    three-year contract to clean the carpets of an office building. The
    contract specified that IDC would clean the carpets monthly from July 1
    of this year through June 30 three years hence. IDC received payment in
    full of $8,640 ($240 a month for 36 months) on June 30 of this year.
  4. IDC
    sold 100 bottles of carpet stain remover this year for $5 per bottle
    (it collected $500). Rex sold 40 bottles on June 1 and 60 bottles on
    November 2. IDC had the following carpet cleaning supplies on hand for
    this year and it uses the LIFO method of accounting for inventory:

    Purchase Date Bottles Total Cost
    November last year 40 $120
    February this year 35 $112
    July this year 25 $ 85
    August this year 40 $140
    Totals 140 $457
  5. On August 1 of this year, IDC needed more room for storage and paid $900 to rent a garage for 12 months.
  6. On
    November 30 of this year, Bryan decided it was time to get his logo on
    the sides of his work van. IDC hired We Paint Anything, Inc. (WPA), to
    do the job. It paid $500 down and agreed to pay the remaining $1,500
    upon completion of the job. WPA indicated it wouldn’t be able to begin
    the job until January 15 of next year, but the job would only take one
    week to complete. Due to circumstances beyond its control, WPA wasn’t
    able to complete the job until April 1 of next year, at which time IDC
    paid the remaining $1,500.
  7. In December, Bryan’s son, Aiden,
    helped him finish some carpeting jobs. IDC owed Aiden $600 (reasonable)
    compensation for his work. However, Aiden did not receive the payment
    until January of next year.
  8. IDC also paid $1,000 for interest on
    a short-term bank loan relating to the period from November 1 of this
    year through March 31 of next year.

85.

Hank
started a new business in June of last year, Hank’s Donut World (HW for
short). He has requested your advice on the following specific tax
matters associated with HW’s first year of operations. Hank has
estimated HW’s income for the first year as follows:

Revenue:
Donut sales $252,000
Catering revenues 71,550 $323,550
Expenditures:
Donut supplies $124,240
Catering expense 27,910
Salaries to shop employees 52,500
Rent expense 40,050
Accident insurance premiums 8,400
Other business expenditures 6,850 –259,950
Net Income $ 63,600

HW
operates as a sole proprietorship and Hank reports on a calendar-year.
Hank uses the cash method of accounting and plans to do the same with HW
(HW has no inventory of donuts because unsold donuts are not salable).
HW does not purchase donut supplies on credit nor does it generally make
sales on credit. Hank has provided the following details for specific
first-year transactions.

  • A small minority of HW clients
    complained about the catering service. To mitigate these complaints,
    Hank’s policy is to refund dissatisfied clients 50 percent of the
    catering fee. By the end of the first year, only two HW clients had
    complained but had not yet been paid refunds. The expected refunds
    amount to $1,700, and Hank reduced the reported catering fees for the
    first year to reflect the expected refund.
  • In the first year, HW
    received a $6,750 payment from a client for catering a monthly
    breakfast for 30 consecutive months beginning in December. Because the
    payment didn’t relate to last year, Hank excluded the entire amount when
    he calculated catering revenues.
  • In July, HW paid $1,500 to
    ADMAN Co. for an advertising campaign to distribute fliers advertising
    HW’s catering service. Unfortunately, this campaign violated a city code
    restricting advertising by fliers, and the city fined HW $250 for the
    violation. HW paid the fine, and Hank included the fine and the cost of
    the campaign in “other business” expenditures.
  • In July, HW also
    paid $8,400 for a 24-month insurance policy that covers HW for accidents
    and casualties beginning on August 1 of the first year. Hank deducted
    the entire $8,400 as accident insurance premiums. In his estimate, Hank
    deducted these amounts ($40,050 in total) as rent expense.
  • On
    May of the first year, Hank signed a contract to lease the HW donut shop
    for 10 months. In conjunction with the contract, Hank paid $2,000 as a
    damage deposit and $8,050 for rent ($805 per month). Hank explained that
    the damage deposit was refundable at the end of the lease. At this
    time, Hank also paid $30,000 to lease kitchen equipment for 24 months
    ($1,250 per month). Both leases began on June 1 of the first year.
  • Hank
    signed a contract hiring WEGO Catering to help cater breakfasts. At
    year-end, WEGO asked Hank to hold the last catering payment for the
    year, $9,250, until after January 1 (apparently because WEGO didn’t want
    to report the income on its tax return). The last check was delivered
    to WEGO in January after the end of the first year. However, because the
    payment related to the first year of operations, Hank included the
    $9,250 in last year’s catering expense.
  • Hank believes that the
    key to the success of HW has been hiring Jimbo Jones to supervise the
    donut production and manage the shop. Because Jimbo is such an important
    employee, HW purchased a “key-employee” term-life insurance policy on
    his life. HW paid a $5,100 premium for this policy and it will pay HW a
    $40,000 death benefit if Jimbo passes away any time during the next 12
    months. The term of the policy began on September 1 of last year and
    this payment was included in “other business” expenditures.
  • In
    the first year, HW catered a large breakfast event to celebrate the
    city’s anniversary. The city agreed to pay $7,100 for the event, but
    Hank forgot to notify the city of the outstanding bill until January of
    this year. When he mailed the bill in January, Hank decided to discount
    the charge to $5,500. On the bill, Hank thanked the mayor and the city
    council for their patronage and asked them to “send a little more
    business our way.” This bill is not reflected in Hank’s estimate of HW’s
    income for the first year of operations.

Required:

  1. Hank
    files his personal tax return on a calendar year, but he has not yet
    filed last year’s personal tax return nor has he filed a tax return
    reporting HW’s results for the first year of operations. Explain when
    Hank should file the tax return for HW and calculate the amount of
    taxable income generated by HW last year.
  2. Determine the taxable income that HW will generate if Hank chooses to account for the business under the accrual method.
  3. Describe how your solution might change if Hank incorporated HW before he commenced business last year.

86.

R.E.M.,
a calendar-year corporation and Athens, Georgia, band, recently sold
tickets ($20,000,000) for concerts scheduled in the United States for
next year and the following year. For financial statement purposes,
R.E.M. will recognize the income from the ticket sales when it perform
the concerts. For tax purposes, it uses the accrual method and would
prefer to defer the income from the ticket sales until it performs the
concerts. This is the first time that it has sold tickets one or two
years in advance. Michael Stipe has asked your advice. Write a memo to
Michael explaining your findings.

Reviews

There are no reviews yet.

Be the first to review “tax problems”

Your email address will not be published. Required fields are marked *

tax problems

$42.00

Description

1. When does a child no longer qualify a taxpayer for the Child Tax Credit?

The year the child reaches age 17.

The year the child reaches majority, which is 18 in most states.

The year the child reaches age 19.

The year the child reaches age 19, or age 24 if the child is a full-time student at least five months of the year.

2. Which one of the following statements is true about alimony?

Couples may live together while one pays the other alimony and it is still considered alimony.

Alimony payments can be continued to be paid beyond the death of the recipient and still be deductible.

Child support is equivalent to alimony payments.

Alimony must be paid in cash. Checks and money orders qualify as cash.

3. Which one of the following types of income IS included in federal gross income?

Federal income tax refund.

Checking account interest.

Personal injury compensation.

Qualified disaster relief payments.

4. Which one of the following items is deductible on Schedule A?

U.S. federal income taxes withheld.

Charitable contributions.

Personal credit card interest.

Will preparation fees.

5. John is a married taxpayer who has lived apart from his wife Mary for more than three years. John has no qualifying children or qualifying relatives. He no longer knows the whereabouts of his spouse. John must file:

Married filing jointly.

Qualified widow(er).

Single.

Married filing separately.

6. The maximum Child Tax Credit is $1,000 per qualifying child. What two situations may limit taxpayers from receiving the full amount?

Tax liability and earned income above the phase-out thresholds for three or more children.

Earned income above the phase-out thresholds and taxpayer filing status.

Tax liability and modified AGI above the phase-out thresholds.

Modified AGI above the phase-out thresholds and three or more children.

7. Taxpayers without a qualifying child must meet additional requirements to claim the EIC. All of the following are additional requirements EXCEPT:

The taxpayer must reside in the U.S. more than half the year.

The taxpayer cannot be the dependent of another taxpayer.

The taxpayer must earn their income as an employee. They cannot be self-employed.

The taxpayer must be between the ages of 25 and 65.

8. All of the following are requirements to claim EIC, EXCEPT:

The taxpayer must have earned income.

The taxpayer must be a U.S. citizen.

The taxpayer must have a valid SSN for employment in the U.S.

The taxpayer must file a tax return, even if not required.

9. What first triggers the calculation of the additional Child Tax Credit?

Due to tax liability limits, the taxpayer did not receive the maximum Child Tax Credit for which they were eligible.

More than two children lived with the taxpayer.

The taxpayer’s modified AGI was more than 15% over the threshold.

The taxpayer’s modified AGI exceeds $11,500 in 2013.

10. Which of the following is NOT earned compensation for IRA contribution purposes?

Deferred compensation.

Wages and salaries.

Self-employment income.

Commissions.

11. Which of the following taxpayers is an eligible student for purposes of the tuition and fees deduction?

Nancy is taking the H&R Block Income Tax Course.

Sheila is taking an HTML class at her local community center.

Sarah is enrolled in two Psychology classes at Your State University.

Cynthia has a Master’s Degree in Accounting. She is taking a self-defense class at her local community center.

12. If an amended return is based on a non-business bad debt or worthless security, how many years (from the original due date of the return) does a taxpayer generally have to file the amended return?

4 years.

5 years.

6 years.

7 years.

13. Akil is a citizen of Belize and is attending State University. She worked part time and received a Form W-2. In 2011, she filed a Form 1040. She is a non-resident alien and will need to file an amended return. Which form(s) should Akil use?

Form 1040X and Form 1040NR.

Form 1040EZ only.

Form 1040NR only.

Form 1040X only.

14. Which of the following clients is insolvent?

Portia, who owns assets with a fair market value of $4,000 and has total liabilities of $5,000.

Juan, who owns assets with a fair market value of $10,000, has liabilities of $10,000, and retired last year.

Graham, who owns no assets, is unemployed, and has no liabilities.

Heather, who owns assets with a fair market value of $7,500 and has no liabilities.

15. When a taxpayer receives Form 1099-A for the repossession of a house, how is it treated?

As an involuntary conversion.

As a sale of the home.

Both A and B.

None of these.

16. Property, such as land, buildings, and their structural components, are called:

Real property.

Residential property.

Nonresidential property.

Personal property.

17. For a child to qualify for the “kiddie tax” rule, which statement below is not a true statement?

For a child to qualify for the “kiddie tax” rule, which statement below is not a true statement?

The child must not have attained age 24 in the tax year.

The child must have two living parents.

The child must have more than $1,900 investment income.

The child must have at least one living parent.

18. For children to be subject to the “kiddie tax” rule, which of the following statements must be true?

The child must have more than $2,000 investment income.

The child must not have attained age 24 in the tax year.

The child must have at least one living parent.

All of these must be true.

19. Which property is subject to depreciation?

The cars on the lot of an auto dealership.

A duplex that was purchased to use as rental property.

The fair market value of the land where the duplex sits.

A four-wheeler purchased for personal use.

20. Johnni placed the following items in service during 2013: 1) February 3 – a $2,000 machine (7-year property); 2) June 16 – a $1,500 desk (7-year property); and 3) November 10 – a $5,000 computer system (5-year property). No §179 expense deduction was taken. No bonus depreciation was taken. What is the 2013 depreciation for the machine?

$71

$286

$400

$500

21. Which property is subject to depreciation?

A computer used exclusively for business purposes.

A new oven in the taxpayer’s home. The oven is used only for personal use by the taxpayer and family.

A lawn tractor used only to mow the taxpayer’s lawn.

Business inventory.

22. What EITC Due Diligence question must you ask if the taxpayer wishes to claim a dependent who is not their son or daughter?

Are the dependent’s parents still living?

If the dependent’s parents are living, why isn’t the dependent living with the parents?

Where are the dependent’s parents living?

All of these are required.

23. Celia’s spouse died in 2013. Her filing status option for that year is:

Married filing jointly or married filing separately.

Qualifying widow.

Single.

Head of household.

24. A person with an ITIN may file which of the following?

Form 1040.

Form 1040NR.

Form 1040ES.

Any of these forms.

25. Which of the following is CORRECT regarding the tiebreaker rules for a qualifying child?

The parent who has the higher AGI has the higher right, regardless of which parent the child lived with longer.

If neither claimant is a parent, the one who lived with the child longer has the higher right.

The parent who provided more support for the child has the higher right, regardless of AGI.

The parent who lived with the child longer has the higher right, regardless of AGI.

26. Interest income from which of the following institutions can be called a dividend?

Credit unions.

Cooperative banks.

Mutual savings banks.

All of the above.

27. When a bond is sold between interest dates, on whose tax return is the adjustment for accrued interest shown?

The seller’s tax return.

The buyer’s tax return.

Neither the buyer’s nor the seller’s tax return.

Both the buyer’s and the seller’s tax return.

28. Which one of the following items is deductible on Schedule A?

U.S. federal income taxes withheld.

Charitable contributions.

Personal credit card interest.

Will preparation fees.

29. Which one of the following items IS taxable income on the federal return?

Interest from municipal bonds.

Gambling winnings.

Life insurance proceeds paid due to the death of the insured.

30. All of the following non-dependent taxpayers are U.S. citizens. Who is required to file a 2013 income tax return?

April (age 50), QW, $16,500 AGI.

Frank (age 32), HH, $10,500 AGI.

Charity (age 29), S, $7,500 AGI.

Sam (age 62), MFS, $500 AGI, and spouse does not itemize.

31. Which one of the following types of income IS included in federal gross income?

Federal income tax refund.

Checking account interest.

Personal injury compensation.

Qualified disaster relief payments.

32. All of the following are requirements to claim EIC, EXCEPT:

The taxpayer must have earned income.

The taxpayer must be a U.S. citizen.

The taxpayer must have a valid SSN for employment in the U.S.

The taxpayer must file a tax return, even if not required.

33. What first triggers the calculation of the additional Child Tax Credit?

Due to tax liability limits, the taxpayer did not receive the maximum Child Tax Credit for which they were eligible.

More than two children lived with the taxpayer.

The taxpayer’s modified AGI was more than 15% over the threshold.

The taxpayer’s modified AGI exceeds $11,500 in 2013

34. Taxpayers without a qualifying child must meet additional requirements to claim the EIC. All of the following are additional requirements EXCEPT:

The taxpayer must reside in the U.S. more than half the year.

The taxpayer cannot be the dependent of another taxpayer.

The taxpayer must earn their income as an employee. They cannot be self-employed.

The taxpayer must be between the ages of 25 and 65.

35. Which of the following is an INCORRECT statement about the child and dependent care credit?

For a married couple to claim the credit, each must work, be looking for work, or be enrolled as full-time students, or the spouse must be physically or mentally incapable of self-care.

Taxpayers may claim the credit for the care of certain disabled adult children who live in the house.

Taxpayers may claim the credit for care of a disabled spouse.

The credit phases out when a taxpayer’s AGI crosses a certain threshold.

36. In 2013, an eligible educator may deduct up to _____ of qualified expenses paid as an adjustment to income on Form 1040, line 23 (or Form 1040A, line 16).

$850

$500

$350

$250

37. Which of the following taxpayers is an eligible student for purposes of the tuition and fees deduction?

Nancy is taking the H&R Block Income Tax Course.

Sheila is taking an HTML class at her local community center.

Sarah is enrolled in two Psychology classes at Your State University.

Cynthia has a Master’s Degree in Accounting. She is taking a self-defense class at her local community center.

38. Which of the following amended returns is NOT allowed after the due date of the original return?

Claiming an EIC that was not claimed on the original return.

Claiming a Child and Dependent Care Credit that was not on the original return.

Changing from a Form 1040 to a Form 1040NR.

Changing from “married-filing-jointly” to “married-filing-separately”.

39. If an amended return is based on a non-business bad debt or worthless security, how many years (from the original due date of the return) does a taxpayer generally have to file the amended return?

4 years.

5 years.

6 years.

7 years.

40. Income may be recognized from cancellation of debt in which instance below?

The debt canceled from the mortgage on a taxpayer’s second home.

The debt canceled by a purchase price reduction on the sale of a home.

The debt was canceled through a bankruptcy.

The debt canceled was intended as a gift.

41. To what extent is debt canceled in personal bankruptcy taxable as cancellation of debt income?

Unsecured debt that is canceled in bankruptcy is taxable as income.

All canceled debt, except that related to real property, is taxable.

Debt canceled in a bankruptcy proceeding is not taxable as cancellation of debt income.

Only secured debt in excess of the fair market value of the collateral is taxable as income.

42. Property, such as land, buildings, and their structural components, are called:

Real property.

Residential property.

Nonresidential property.

Personal property.

43. For children to be subject to the “kiddie tax” rule, which of the following statements must be true?

The child must have more than $2,000 investment income.

The child must not have attained age 24 in the tax year.

The child must have at least one living parent.

All of these must be true.

44. Mike and Janet, married and filing jointly, lived in their home for two years. At the beginning of the third year, they sold their home at a profit of $650,000. How much of the profit can they exclude from taxable gain?

They can exclude $500,000.

They can exclude $250,000.

They can exclude somewhere between $250,000 and $500,000, depending on why they moved.

They have no exclusion since they did not own the home for five years.

45. Johnni placed the following items in service during 2013: 1) February 3 – a $2,000 machine (7-year property); 2) June 16 – a $1,500 desk (7-year property); and 3) November 10 – a $5,000 computer system (5-year property). No §179 expense deduction was taken. No bonus depreciation was taken. What is the 2013 depreciation for the machine?

$71

$286

$400

$500

46. Which property is subject to depreciation?

A computer used exclusively for business purposes.

A new oven in the taxpayer’s home. The oven is used only for personal use by the taxpayer and family.

A lawn tractor used only to mow the taxpayer’s lawn.

Business inventory.

47. Samantha purchased a machine in 2012 and used a §179 expense deduction. In 2013, business use dropped below 50%. As a result of this drop, Samantha must ___?

Stop taking any depreciation on the machine.

Change from the general MACRS to a straight-line system.

Recapture (add back into income) a prorated portion of that which was expensed.

Change nothing with depreciation on the return.

48. Taxpayers without a qualifying child must meet additional requirements to claim the EIC. All the following are additional requirements, EXCEPT:

The taxpayer must be between the ages of 25 and 65.

The taxpayer must not be the dependent of another taxpayer.

The taxpayer must earn their income as an employee. They cannot be self-employed.

The taxpayer must reside in the U.S. for more than half the year.

49. Which of the following items is included in support for a dependent?

Funeral expenses.

A manicure.

Amounts contributed to savings.

A college scholarship.

50. person with an ITIN may file which of the following?

Form 1040.

Form 1040NR.

Form 1040ES.

Any of these forms.

51. With respect to dependency, which of the following statements is NOT true?

The dependent generally cannot file a joint return.

The dependent must be a U.S. citizen or resident of the U.S., Canada, or Mexico.

A taxpayer who is a dependent of another taxpayer may not claim any dependents.

The individual must be raised as the taxpayer’s child

52. When a bond is sold between interest dates, on whose tax return is the adjustment for accrued interest shown?

The seller’s tax return.

The buyer’s tax return.

Neither the buyer’s nor the seller’s tax return.

Both the buyer’s and the seller’s tax return.

53. Bonds issued by a state or political subdivision are often called:

U.S. savings bonds

Municipal bonds

Treasury bonds

Series HH bonds

54. Where do you deduct expenses related to a rental property conducted as a not-for-profit activity?

The expenses are subtracted from gross rental income before entering net rental income on Form 1040, line 21.

Schedule E, line 19, other expenses.

Schedule A, line 23, other expenses.

Form 1040, line 36 as a manual entry “not-for-profit rental”.

55. What should a Tax Professional do if a client thinks the distribution code on Form 1099-R is incorrect?

Enter the distribution code the client thinks is correct in the tax preparation software and attach an e-note to the tax return explaining the correction.

Advise the client to contact the issuer of the Form 1099-R to obtain a corrected form.

Prepare an original tax return reporting the incorrect distribution code, and then immediately prepare an amended tax return with the correction and an explanation of the correction.

Prepare a paper tax return to be mailed in with a hand-corrected form and an explanation of the correction.

56. Which item is NOT permitted as a mortgage interest deduction on Schedule A?

Points paid to purchase a new home.

Mortgage interest paid on the taxpayer’s second home.

Mortgage interest paid on the taxpayer’s third home.

Late payment charges paid on the taxpayer’s new home.

57. Which of the following taxes paid could be deductible on the taxpayer’s 2013 Form 1040, Schedule A?

2013 fourth quarter estimated state income tax payment paid timely on January 15, 2014.

City tax balance due paid on November 15, 2013, for income earned in 2012.

Luxury tax in excess of the selective sales tax rate paid for a new car on February 12, 2013.

Employment tax for household workers paid February 10, 2013.

58. Which of the following items are deductible as a medical expense on Schedule A?

A walk-in shower for a handicapped individual, which increases the value of the home in excess of the cost of the improvement.

Insurance, which pays for lost wages when the beneficiary is disabled and unable to work.

Laser eye surgery undergone to avoid wearing glasses.

Over-the-counter birth control supplies.

59. Toby owns a duplex. He lives in the property and rents out the other half. Toby will report any income and expenses incurred on the half that is rented on which schedule?

Schedule E.

Schedule F.

Schedule D.

Schedule B.

60. Gregory owns a rental house, which he rents at $200 per month. Similar houses in the neighborhood rent for $600 per month. As Gregory’s Tax Professional, how should you treat his rental income?

The income is reported, and all expenses deducted, on Schedule E.

The income is not reported because Gregory is operating the property as a charity.

The income is reported on Form 1040, line 21, and rental expenses, up to the amount of income, are deducted on Schedule A.

A charitable contribution of $400 is reported on Schedule A for every month Gregory rents the property at $200.

61. Which of the following is NOT rental income?

Expenses paid by the tenant for their own enjoyment.

Forfeited security deposit.

Rental expenses directly paid by the tenant.

Advance rental payments.

62.

Income from rental real estate is generally considered to be:

Income from rental real estate is generally considered to be:

Active income.

Passive income.

Portfolio income.

Earned income.

63. Generally, a taxpayer may be subject to a 10% early distribution penalty from an IRA or 401(k), unless he or she has reached the age of:

50

59.5

65.5

67

64. The IRS may offset (apply) a taxpayer’s refund to which of the following types of debts?

Past-due child support.

Past-due car payments.

Past-due mortgage payments.

Past-due credit card accounts.

65. Nichole has operated a shoe store since 2004. In 2013, she began selling socks and handbags. How many Schedules C should Nichole file for 2013?

Zero.

One.

Two.

Three.

66. Chris is a self-employed certified financial planner and began his business in 2013. During 2013 he purchased a $500 computer and a $250 desk. He also paid $6,000 in legal/incorporation fees, and spent $12,000 for a new roof for the office building he owns. Which purchase(s) can he expense in 2013 without limitation?

Computer, desk, legal/incorporation fees, roof.

Computer, desk, legal/incorporation fees.

Computer, and desk.

Legal fees/incorporation fees, roof.

67. A taxpayer can be exempt from withholding when: A. Taxpayer had no federal tax liability in the preceding year. B. Taxpayer does not expect to have federal tax liability for the current year.

B only.

Neither A nor B.

A and B.

A only.

68. The cost basis of property includes which of the following items?

Settlement fees and other costs of purchase.

Sales tax charged on purchase of the property.

Unreimbursed real estate tax paid on the seller’s behalf.

All of the above.

69. The cost basis of rental property includes:

The cost basis of rental property includes:

Fees paid to the settlement attorney.

Recording fees and transfer taxes.

Real estate taxes paid on behalf of the seller without reimbursement.

All of the above.

70. Which statement about a qualifying child is true?

A child who is the qualifying child to one taxpayer may claim his or her own qualifying child.

A child may be a qualifying child to multiple taxpayers in the household.

A child may be claimed as a qualifying child by multiple taxpayers in the household.

A child who is a qualifying child to one taxpayer may be claimed as a qualifying relative by another taxpayer.

71. Which situation below qualifies a taxpayer to file as head of household?

A child not living in the household whose dependency exemption was released to the taxpayer.

A dependent brother who lived in the household almost half the year.

A dependent girlfriend who lived in the household all year.

A dependent nephew who lived in the household more than half the year.

72. Using the shell return, Diane M. Willsey (SSN###-##-#### ***** a travel agency. On September 3, 2012, she purchased and placed in service a new computer for $3,000 to be used exclusively at her place of business. Using the Depreciation Worksheet in TPS, compute the 2012 and 2013 computer depreciation. Diane did not take any §179 or bonus depreciation.

a. 2012 Depreciation = $600

2013 Depreciation = $600

b. 2012 Depreciation = $900

2013 Depreciation = $960

c. 2012 Depreciation = $690

d. 2013 Depreciation = $990

2012 Depreciation = $600

2013 Depreciation = $960

73. When entering assets on Schedule C in TPS, a computer that is used 30% of the time for business and 70% for personal use would use which property code from the list shown?

P-Personal Property

O-Other Listed Property

Z-Nonrecoverable Assets, Capitalized

R-Real Property

Reviews

There are no reviews yet.

Be the first to review “tax problems”

Your email address will not be published. Required fields are marked *

TAx problems

$53.00

Description

Problem 62

Janice Morgan, age 32, is single and has no dependents. She
is a freelance writer. In January 2013, Janice opened her own office located at
22751 Waldham Road, Pleasant Hill, NM 88135. She called her business Writers
Anonymous. Janice is a cash basis taxpayer. She lives at 132 Stone Avenue,
Pleasant Hill, NM 88135. Her Social Security number is 123-45-6789. Janice
wants to contribute to the Presidential Election Campaign Fund. During 2013,
Janice had the following income and expense items connected with her business:

Income from sale of articles $85,000

Rent 16,500

Utilities 7,900

Supplies 1,800

Insurance 5,000

Travel (including meals of $1,200) 3,500

Janice purchased and placed in service the following fixed
assets for her business:

Furniture and fixtures (new) costing $21,000 on January 10.

Computer equipment (new) costing $12,400 on July 28.

Janice elected immediate expending under Section 179.

Janice’s itemized deductions are as follows:

State income tax $3,000

Home mortgage interest 6,000

Property taxes on home 1,500

Charitable contributions 1,200

Janice did not keep a record of the sales tax she paid. The
amount from the sales tax table is $437

Janice has interest income of $20,000 on certificates of
deposit at Second Bank. Janice makes estimated tax payments of $3,00 for 2013.

Compute Janice Morgan’s 2012 Federal income tax payable (or
refund due).

Problem 63

John Smith, age 31, is single and has no
dependents. At the beginning of 2014, John started his own excavation business
and named it Earth Movers. John lives at 1045 Center
Street, Lindon, UT, and his business is located at
381 State Street, Lindon, UT. The
ZIP Code for both addresses is 84042. John’s
Social Security number is 111-11-1111, and the business identification number
is 11-1111111. John is a cash basis taxpayer. During 2014, John had the
following items in connection with his business:
Fees for services $460,000
Building rental expense 36,000
Office furniture and equipment rental expense 9,000
Office supplies 2,500
Utilities 4,000
Salary for secretary 34,000
Salary for equipment operators 42,000
Payroll taxes 7,000
Fuel and oil for the equipment 21,000
Purchase of three new front-end loaders on January
15, 2014, for $550,000. John made the election under § 179. 550,000
Purchase of a new dump truck on January 18, 2014
80,000
During 2014, John had the following additional items:
Interest income from First National Bank $10,000
Dividends from ExxonMobil 9,500
Quarterly estimated tax payments 11,500
John does not take additional first-year
depreciation.
On October 8, 2014, John inherited IBM stock from
his Aunt Mildred. John had been her favorite nephew. According to the data
provided by the executor of Aunt Mildred’s estate, the stock was valued for
estate tax purposes at $110,000. John is considering selling the IBM stock for
$125,000 on December 29, 2014, and using $75,000 of the proceeds to purchase an
Acura ZDX. He would use the car 100% for business. John wants to know what
effect these transactions would have on his 2014 adjusted gross income.
Write a letter to John in which you present your
calculations. Also prepare a memo for the tax files

Reviews

There are no reviews yet.

Be the first to review “TAx problems”

Your email address will not be published. Required fields are marked *

TAx problems

$79.00

Description

Q

Martin S. Albert (SS # 363-22-1141) is 39 Years old and is married to Michele R. Albert (SS# 259-05-8242). The Alberts live at 512 Ferry Road, Newport News, VA 23100. They file a joint return and have two dependent children ( Charlene, age 17, and Jordan, age 18) Charlene’s SS3# is 260-12-1234, and Jordan’s is 263-23-4321. In 2007, Martin and Michele had the following transactions:
a) Martin received $115,000 in salary from Red Steel Corporation, where he is a construction engineer. Whitholding for Federal income tax was $10,750. The amounts witheld for FICA tax were as follows: $6,622 (106,800 x 6.2%) for Social Security and $ 1,668 (115,000x 1.45%) for Medicare. Martin worked in Mexico from January 1, 2006 until Feb. 15 2007. His $108,000 salary for 2007 includes $16,000 he earned for January and one-half of February 2007 while working in Mexico.
b) Martin and Michele received $800 in dividends on Green, Inc. stock and $400 interst on Montgomery County (Virginia) school bonds.
c) Martin recieved $2300 interest from a Bahamian bank account.
d) Michele received 50 shares of Applegate Corporation common stock as a stock dividend. The shares had a fair market value of $2000 at the time Michele received them, and she did not have teh option of receiving cash.
e) Martin and Michele received a $900 refund on their 2006 Virginia income taxes. Their itemized deductions in 2006 totaled $12,500
f) Martin paid $6,000 alimony to his former wife, Rose T. Morgan ( ss # 262-55-4813)
g) Marin and Michele kept the receipts for their sales taxes paid of $1,100
h) Martin and Michele’s itemized deductions were as follows:
-State income tax paid and withheld totaled $5,100
-Real estate taxes on their principle residence were $3,400
-Mortgage interest on their principle residence was $2,500
-Cash Contributions to the church totaled $2,800
Part 1- TaxComputation
Compute the Albert’s net tax payable (or refund) for 2012
Part 2- Tax Planning
The Alberts are considering buying another house. Their house mortage payments would increase by $500 (to $1500) per month, which includes a $250 increase in interest and a $100 increase in property tax. The Alberts would like to know how much the mortage payments would increase net of any change in their income tax. Write a letter to the Alberts that contains your advice.

Q2

59. Alfred E. Old and Beulah A. Crane, each age 42, married on September
7, 2011. Alfred and Beulah will file a joint return for 2012. Alfred’s
Social Security number is 111-11-

1111. Beulah’s Social Security
number is 123-45-6789, and she adopted “Old” as her married name. They
live at 211 Brickstone Drive, Atlanta, GA 30304.
Alfred was divorced from Sarah Old in March 2010. Under the divorce agreement,
Alfred
is to pay Sarah $1,250 per month for the next 10 years or until Sarah’s
death, whichever occurs first. Alfred pays Sarah $15,000 in 2012. In
addition, in January 2012,
Alfred pays Sarah $50,000, which is designated as being her share of the marital property.
Also, Alfred is responsible for all prior years’ income taxes. Sarah’s Social Security number is 123-45-6788.
Alfred’s
salary for 2012 is $150,000, and his employer, Cherry, Inc. (Federal
I.D. No. 98-7654321), provides him with group term life insurance equal
to twice his annual salary. His employer withheld $24,900 for Federal
income taxes and $8,000 for state income taxes. The following amounts
were withheld for FICA taxes: $4,624 ($110,100 ×

4.2%) for Social Security and $2,175 ($150,000 × 1.45%) for Medicare.
Beulah recently graduated from law school and is employed by Legal Aid Society,
Inc.
(Federal I.D. No. 11-1111111), as a public defender. She receives a
salary of $40,000 in 2012. Her employer withheld $7,500 for Federal
income taxes and $2,400 for state income taxes. The following amounts
were withheld for FICA taxes: $1,680 ($40,000 ×4.2%) for Social Security
and $580 ($40,000 × 1.45%) for Medicare.
Beulah has $2,500 in qualified dividends on Yellow Corporation stock she inherited.
Alfred
and Beulah receive a $1,900 refund on their 2011 state income taxes.
They itemized deductions on their 2011 Federal income tax return (total =
$15,000). Alfred and
Beulah pay $4,500 interest and $1,450 property
taxes on their personal residence in 2012. Their charitable
contributions total $2,400 (all to their church). They paid sales taxes
of $1,400 for which they maintain the receipts.
Compute the Olds’ net
tax payable (or refund due) for 2012. If you use tax forms for your
solution, you will need Form 1040 and Schedules A and B. Suggested
software:
H&R BLOCK At Home.

Reviews

There are no reviews yet.

Be the first to review “TAx problems”

Your email address will not be published. Required fields are marked *

tax problems

$53.00

Description

For
this assignment, you will complete two tax returns (Corporation Return and
Partnership Return), for 175 points each. You may use the tax software found
at.intuit.com/tax/proseries/”>http://accountants.intuit.com/tax/proseries/

Please note there is a
limit of 5 returns per session.

PART I – Tax Return #1, Corporate Return

Background

Jane Collier, James
Taye, and Steve Allwine each own one-third of the common stock of Tasty Treats
and Beverages. The corporation was incorporated on April 3, 2004. It has only
one class of stock outstanding and operates as a C corporation for tax
purposes. Tasty Treats and Beverages caters kid-friendly social events.

·
Located at 1215 Blue Horizon, Dallas, TX 12234.

·
Employer Identification Number is 12-34567890.

·
Business activity is catering food. Its business activity code
is 722300.

·
The shareholders also work as officers for the corporation as
follows:

o Jane is the chief
executive officer and president (Social Security number 242-62-5786).

o James is the executive
vice president and chief operating officer (Social Security number
563-58-8923).

o Steve is the vice
president of finance (Social Security number 575-58-1572).

All officers devote 100% of their time to the business

All officers are U.S. citizens.

Use the accrual method of accounting and have a calendar
year-end.

Four equal estimated tax payments of $28,000 each quarter. Its
tax liability last year was $85,000.

If it has overpaid its federal tax liability, the corporation
would like to receive a refund.

Dividend paid of $20,000 to its shareholders on October 1. The
Corporation had ample earnings and profits (E&P) to absorb the
distribution.

Financial Statements

Tasty Treats and Beverages, Inc.

Income Statement

For year ended December 31, 2013

Revenue from sales

1,500,000

Sales returns and allowances

(25,000)

Cost of goods sold

(325,000)

Gross profit from operations

1,150,000

Other Income:

Capital loss

(7,500)

Dividend income

15,000

Interest income

12,000

Gross income

1,169,500

Expenses:

Compensation

(750,000)

Depreciation

(12,000)

Bad debt expense

(7,800)

Meals and entertainment

(3,000)

Maintenance

(2,500)

Property taxes

(10,000)

State income taxes

(30,000)

Other taxes

(11,000)

Rent

(28,000)

Interest

(7,300)

Advertising

(6,200)

Professional services

(5,000)

Employee benefits

(8,000)

Supplies

(2,500)

Other expenses

(1,750)

Total expenses

(885,050)

Income before taxes

284,450

Federal income tax expense

96,713

Net income after
taxes

187,737

·

·

Tasty
Treats and Beverages, Inc.

Balance
Sheet

December
31, 2013

ASSETS

January
2013

December
2013

Cash

175,000

190,000

Accounts
Receivable

63,000

54,000

Allowance
for doubtful accounts

(8,000)

(7,000)

Inventory

225,000

275,000

US
government bonds

30,000

25,000

State
and local bonds

50,000

50,000

Investments
in stock

325,000

335,000

Fixed
assets

475,000

485,000

Accumulated
depreciation

(198,000)

(215,000)

Other
assets

11,000

12,000

Total
assets

1,148,000

1,204,000

Liabilities
and Stockholder’s Equity

Accounts
payable

225,000

200,000

Other
current liabilities

135,000

55,000

Other
liabilities

75,000

68,263

Capital
stock

250,000

250,000

Retained
earnings

463,000

630,737

Total
liabilities and stockholder’s equity

1,148,000

1,204,000

·
Additional Information

o Inventory-related
purchases during 2013 were $175,000. It values its inventory based on cost
using the FIFO inventory cost flow method. Assume the rules of §263A do not
apply.

o Of the $12,000
interest income, $1,500 was from a City of Dees bond that was used to fund
public activities (issued in 2011), $1,750 was from an Border city bond used to
fund private activities (issued in 2004), $2,500 was from a U.S. Treasury bond,
and the remaining $6,250 was from a money market account.

o Dividend income came
from ABC Inc. Owned 10,000 shares of the stock in ABC Inc. at the beginning of
the year. This represented 10 percent of outstanding stock.

o On September 1, 2013,
the corporation sold 1,000 shares of its ABC stock for $15,000. It had
originally purchased these shares on June 13, 2006, for $7,500. After the sale,
the Corporation owned 9 percent of ABC.

o compensation is as
follows:

§ Jane $175,000

§ James $150,000

§ Steve $150,000

§ Other $275,000

o The Corporation wrote
off $10,000 in accounts receivable as uncollectible during the year.

o Regular tax
depreciation was $28,000. None of the depreciation should be claimed on Form 1125A.

o The $7,300 interest
expense was from a business loan.

o Other expenses include
$3,000 for premiums paid on term life insurance policies for which Tasty Treats
and Beverages, Inc. is the beneficiary. The policies cover the lives of Jane,
James, and Steve.

PART II – Tax Return #2, Partnership Return (Form 1065, only
Page 1 and Schedule K required)

Background

The Rowdy Fun is a
limited partnership and was formed on June 1, 2005, by Thomas Kyle, its general
partner, and two other limited partners when they each contributed an equal
amount of cash to start the new enterprise. Rowdy Fun is an outdoor equipment
retailer focused on selling outdoor activities gear. Thomas has a 33.33%
profits and capital interest and the limited partners hold the remaining 66.66%
of the profits and capital interests. Their profits and capital interests have
remained unchanged since the partnership was formed. Thomas is actively
involved in managing the business while the limited partners are simply
investors.

·
Rowdy Fun is located at 8955 Golden Drive, Sunnydale, AZ 34592.

·
The employer identification number for Rowdy Fun is 47-8593563.

·
Rowdy Fun uses the accrual method of accounting and has a
calendar year end.

·
Thomas’ address is 853 Crystal Drive, Sunnydale, AZ 34592.

Additional Information

·
Rowdy Fun has total assets of $1,900,000 and total liabilities
of $550,000 at the beginning of the year and total assets of $2,300,00 and
total liabilities of $725,000 at the end of the year.

·
Partnership liabilities consist of accounts payable, and Thomas,
as general partner, is legally responsible for paying these liabilities if the
partnership does not.

·
Five years ago, Rowdy Fun purchased an original outdoor statue
with the intent for display in the store. In 2013, the statue was sold. The
$15,000 recognized gain from the sale is reflected in the income statement.

·
For tax purposes, Rowdy Fun has consistently elected under
Section 179 to expense any furniture or fixtures purchased every year since it
was formed. There is no tax basis in any of its depreciable assets. This year,
Rowdy Fun expensed $23,000 of signs and display cases for tax purposes.

·
On November 20th, Rowdy Fun distributed $90,000 ($30,000 per
partner) to the partners.

·
Miscellaneous expenses include a $1200 fine for violating a
local ordinance.

·
Rowdy Fun maintains its books using generally accepted
accounting principles.

Financial Statements

Rowdy Fun

Income Statement

For year ended December 31, 2013

Sales

975,000

Sales returns and allowances

(25,000)

Cost of goods sold

(300,000)

Gross profit from operations

650,000

Other Income:

Interest from Money Market

3,500

Gain for sale of statue

15,000

Gross income

668,500

Expenses:

Employee wages

(125,000)

Interest on accounts payable

(2,000)

Payroll and property taxes

(45,000)

Supplies

(26,000)

Rent on retail building

(20,000)

Depreciation on furniture and fixtures

(15,400)

Advertising

(4,000)

Guaranteed payments to Thomas Kyle

(40,000)

Utilities

(16,000)

Accounting and legal services

(5,000)

Meals and entertainment

(500)

Charitable Contributions

(375)

Miscellaneous expense

(425)

Total expenses

(299,700)

Net Income for Books

368,800

Reviews

There are no reviews yet.

Be the first to review “tax problems”

Your email address will not be published. Required fields are marked *

tax problems

$23.00

Description

1. HKco is a wholly owned Hong Kong subsidiary of USAco, a domestic corporation.
USAco sells widgets to HKco, which then resells them to Korean customers. In addition, USAco pays HKco a fee for fi nding materials in Japan that USAco buys as a component for its widgets. HKco invests all its profi ts in certifi cates of deposit at the Bank of Hong Kong. What types of Subpart F income must USAco report as a result of its ownership of HKco?

2. Do any of the following foreign corporations qualify as controlled foreign corporations? Explain.
(a) Two U.S. persons each own 26% of FORco1, with foreign persons owning the remaining 48%.
(b) One hundred unrelated U.S. persons each own 1% of FORco2.
(c) One U.S. person owns 47% of FORco3, a second U.S. person owns 5% of FORco3, and foreign persons own the remaining 48% of FORco3.

3. Chris, a nonresident alien, owns fi ve percent of USAco, a domestic corporation. USAco pays Chris a $1,000 dividend during the current year. Chris also purchases a bond issued by USAco, and receives a $1,000 payment. USAco derives over 90 percent of its gross income from its business operations in Canada. Are there any U.S. withholding requirements with respect to these interest and dividend payments?
Explain.

4. USAco, a domestic corporation, is a wholly-owned subsidiary of FORco, a foreign corporation. USAco’s only assets are cash of $200,000, accounts receivable of $200,000 and its U.S. manufacturing plant worth $500,000. USAco has no liabilities. FORco sells USAco to an independent U.S. buyer. Is FORco’s sale of USAco subject to withholding under FIRPTA? Explain. Would your answer change if USAco had a liability of $300,000 in the form of a mortgage on the U.S. manufacturing plant?

5. Rick Rocker, a citizen and resident of country F, conducts a three-concert tour in the United States. A multi-talented individual, Rocker sells tickets to his concert from the ticket booth before his concert begins. During intermission, he sells beer from the beer stand. Afterwards, Rocker sells T-shirts at the concession stand. Is Rocker engaged in a U.S. trade or business? Explain. If Rocker is engaged in a U.S. trade or business, what income is subject to U.S. tax?

Reviews

There are no reviews yet.

Be the first to review “tax problems”

Your email address will not be published. Required fields are marked *

tax problems

$8.00

Description

1.Hans, a citizen and resident of
Argentina, is a retired bank executive. Hans does not hold a green card. At the
start of Year 1, Hans paid $2.5 million for a 20-unit apartment complex located
in the suburbs of Washington, D.C. Hans does not actively manage the building,
but rather leases it to an unrelated property management company that subleases
the building to the tenants. During Year 1, Hans had rental income of $300,000
and operating expenses (depreciation, interest, insurance, etc.) of $220,000.
On the advice of his accountant, Hans made a Code Sec. 871(d) election in Year
1. At the start of Year 2, Hans sold the building for $350,000. Hans’ adjusted
basis in the building at that time was $290,000.

What are the U.S. tax consequences of Hans’ U.S. activities?

2.USAco, a domestic
corporation, is a wholly-owned subsidiary of FORco, a foreign corporation.
USAco’s only assets are cash of $200,000, accounts receivable of $200,000 and
its U.S. manufacturing plant worth $500,000. USAco has no liabilities. FORco
sells USAco to an independent U.S. buyer.

Is FORco’s sale of USAco subject to withholding under FIRPTA?
Explain.

Would your answer change if USAco had a liability of $300,000 in
the form of a mortgage on the U.S. manufacturing plant?

4. Wheelco, a foreign corporation,
manufactures motorcycles for sale worldwide. Wheelco markets its motorcycles in
the United States through Wheely, a wholly-owned U.S. marketing subsidiary that
derives all of its income from U.S. business operations. Wheelco also has a
creditor interest in Wheely, such that Wheely’s debt to equity ratio is 3 to 1,
and Wheely makes annual interest payments of $60 million to Wheelco. The
results from Wheely’s first year of operations are as follows:

Sales
…………………………………………………………………………………

$180 million

Interest income
…………………………………………………………………….

$6 million

Interest expense (paid to
Wheelco)…………………………………………………………………………………….

$6 million

Depreciation
expense………………………………… …………………………

($30 million)

Other operating
expenses…………………………… …………………………

($81 million)

Pre-tax income
………………………………………….
……………………….

$15 million

Assume the U.S.
corporate tax rate is 35%, and that the applicable tax treaty exempts Wheelco’s
interest income from U.S. withholding tax. Compute Wheely’s interest expense
deduction.

Reviews

There are no reviews yet.

Be the first to review “tax problems”

Your email address will not be published. Required fields are marked *

Tax problems

$47.00

Description

Harry had the following property exchanges in 2012:

• Harry exchanged a machine used in his business, with an adjusted basis of $37,484 and a fair market value of $59,000, for a machine owned by Jack. Jack’s machine had an adjusted basis of $49,500 and a fair market value of $55,000. As part of the exchange, Jack also gave Harry $4,000 in cash.

• Harry exchanged a machine used in his business, with an adjusted basis of $9,371 and a fair market value of $14,750, for office furniture owned by Jill. Jill’s furniture had an adjusted basis of $11,250 and a fair market value of $13,750. As part of the exchange, Jill also gave Harry $1,000 in cash.

• Harry exchanged a refrigeration system used in his business, with an adjusted basis of $112,000 and a fair market value of $110,000, for a small warehouse owned by Peter. Peter’s warehouse had a $60,000 liability that Harry agreed to assume. Peter’s warehouse had an adjusted basis of $185,600 and a fair market value of $170,000.

• Harry exchanged a tract of land that he was holding for investment for a tract of land owned by Mina Co. Harry had acquired the land 13 years ago for $6,000. Its fair value is $13,000. The land owned by Mina Co. was acquired 9 months ago for $17,000 and had a fair market value of $20,000 at the date of exchange. Harry agreed to assume the $7,000 debt on Mina’s land.

Required:

For each of the above situations, respond to the following:

a) Calculate the realized gain for Harry and the other party in the exchange.

b) Calculate the recognized gain for Harry and the other party in the exchange.

c) What is each party’s basis in the property received?

Question 2 (20 marks)

Erica, a scientist, had worked for PBJ Labs, Ltd. for 15 years. On June 30, 2012, she lost her job due to corporate downsizing. Her husband, Morris, an assembly line worker, lost his job on July 31, 2012 when his employer closed down due to bankruptcy. From January 1 to July 31, 2012, Morris earned $25,000. He felt fortunate that he received all his pay when his employer closed down. For 2012, Erica received $50,000 in salary and benefits from PBJ. In addition, PBJ gave Erica a severance package of $5,000 and agreed to continue paying her medical insurance premiums of $500 per month until June 30, 2013. Her medical plan provided coverage for her and her family.

Late in 2011, Morris learned that his employer was having financial difficulties. He suspected that he might lose his job, so he signed up for a training course that would qualify him to drive city buses. He took the course on a part-time basis from January through February and passed his examination in May, 2012. He paid $3,500 for the course.

Erica found a job in September, 2012. However, it was located in Maryland. With Morris losing his job as well, they decided that it was time to relocate from California to Maryland. Erica started her new job in November and Morris found a job driving buses. He started in December. Erica’s new monthly salary was $7,000. She usually receives her pay at the end of the month but because of the Christmas break, she did not pick up her December paycheck until January 5, 2012, even though it was available for pick-up on December 30. In contrast, Morris’s employer paid everyone in advance because of the Christmas break. Morris receives a semi-monthly salary of $2,000. Erica needed some lab supplies for her new job and paid $1,000 for them. The company said that it would reimburse her but never did.

In relocating to Maryland, Erica and Morris sold their house for $390,000 on September 30, 2012. They paid a $9,000 commission to their realtor and had closing costs of $7,000. They had paid $525,000 cash for the house four years ago. Property taxes for 2012 for the house were $2,800. These taxes were apportioned at closing as the 2012 taxes were not due until February 2013. Erica had a home equity loan of $150,000 secured by the house. She had paid interest of $12,000 on the loan in 2012.

Erica flew to Maryland on a house-hunting trip in October and Morris stayed behind to take care of their three young children. Erica purchased a new house for $300,000, taking out a $175,000 mortgage. She paid points of $2,200 to take out the mortgage. She took possession of the house on November 1. For 2012, Erica paid interest of $1,350 on this mortgage. In order for Erica to get an early possession date, she had to agree to pay for all the property taxes in 2012. These taxes total $3,900 and are due and payable in January 2013. The cost of Erica’s trip was $3,000 including air fare, accommodations, and meals. To save money, Morris decided to rent a trailer and drive his family and possessions to Maryland. The trailer rental was $750 and the trip covered 3,200 miles. Motel rooms during the trip cost a total of $400 and meals totaled $550.

During the move to Maryland, someone broke into the trailer while they were staying at a motel. The cost of the stolen goods totaled $9,800. However, Morris did not properly complete the insurance paperwork when he rented the trailer and the claim was denied.
Morris sold 500 shares of Krane Ltd. stock on September 25, 2012 for $10 per share. He had purchased the stock 10 years ago for $13 per share. His intention was to use the money to make charitable contributions to his college and Erica’s university before they left. After talking to Erica, they decided that it was too generous, given their situation. He purchased 250 shares of Krane on October 5, 2012 for $9 per share. The remainder of the cash was donated, split equally between Morris and Erica’s alma maters.

A total of $11,500 in federal income taxes and $1,000 in state income taxes has been withheld by Erica’s employers on her paychecks. A total of $6,000 in federal income taxes and $1,500 in state income taxes has been withheld by Morris’s employers on his paychecks. During 2012, the couple received a federal income tax refund of $3,800 and a state income tax refund of $900. These refunds relate to their 2011 returns. They chose to itemize their deductions on their 2012 Form 1040.

Required:

a) Erica and Morris will file a joint return. Calculate their AGI.

b) Calculate the amount of their itemized deductions.

c) Calculate their taxable income.

d) What is the basis of their new house in Maryland?

Question 3 (10 marks)

Wow Events Co. was incorporated and began operations on February 1, 2011. It is an accrual basis taxpayer and has a December 31 year-end. During its 2011 fiscal year, Wow incurred the following organizational costs:

Costs for organization meetings and temporary directors $ 15,000
State incorporation fees 1,500
Accounting fees 15,500
Legal services for drafting corporate charter and bylaws 33,000
Costs related to printing and sale of stock certificates 49,000

For 2011, Wow maximized its organizational expenditures deduction.

For the 2012 fiscal year, Wow reported the following:

Sales $949,000
Dividends received from 12%-owned domestic corporation 175,000
Long-term capital gain 32,000
Short-term capital loss 49,800
Operating expenses, excluding depreciation and amortization 709,500
Charitable contributions 25,000
MACRS 223,400

Required:

a) Calculate Wow’s taxable income and regular tax liability.

b) Assume that the $175,000 in dividends received by Wow were comprised of the following:

From a 33%-owned domestic corporation $131,250
From a 10%-owned domestic corporation 43,750

Recalculate Wow’s taxable income.

c) What carryovers, if any, are available and to what years can they be applied?

Question 4 (20 marks)

Sarah has been designing women’s wear for many years. She received a large inheritance from her grandmother a few years ago and opened a store to sell her designs. The store has not been profitable since it opened, mainly because Sarah is more interested in creating than selling. Two of her friends, Ellen and Tina, have recently agreed to invest in her business.

With her friends coming on board as investors, Sarah decided to change her business entity from a sole proprietorship to a C corporation. To form the corporation, Sarah contributed the following in exchange for 60 common shares:

Adjusted
Basis Fair Market
Value
Inventory $ 10,000 $ 15,000
Building 100,000 175,000
Land 75,000 130,000
$185,000 $320,000

In addition to the stock issued, the newly-formed corporation, Edgewear Co., assumed Sarah’s $215,000 mortgage on the land and building. Ellen contributed $75,000 cash for 25 shares and Tina contributed marketable securities with a basis of $29,000 and a fair value of $45,000 for 15 shares.

Required:

a) What is Sarah’s realized gain or loss?

b) What is Sarah’s recognized gain or loss?

c) What is Sarah’s basis in the Edgewear stock?

d) What is Edgewear’s basis in the property transferred in by Sarah?

e) What is Tina’s recognized gain or loss?

f) What is Tina’s basis in her Edgewear stock?

g) What is Edgewear’s basis in the marketable securities transferred by Tina?

h) When do Sarah’s, Ellen’s, and Tina’s holding periods for their stock begin?

i) Assume that Ellen, an attorney, contributed $70,000 in legal services and $5,000 cash for her 25 shares. In what way, if any, would your answers to questions (a) to (h) change under this assumption?

Question 5 (10 marks)

Black Corporation is a calendar year taxpayer. Bob is the sole shareholder. His basis in the stock is $20,000.

Required:

Determine the tax consequences of the distribution to Bob and Bob’s basis in the stock after the distribution, in each of the following independent situations. Question (d) asks an addition question.

a) Black had current E & P of $40,000 and accumulated E & P of $(15,000). Black distributed $60,000 to Bob on August 31, 2012.

b) Black had current E & P of $(26,500) and accumulated E & P of $75,000. Black distributed $80,000 to Bob on March 1, 2012.

c) Black had current E & P of $(10,000) and accumulated E & P of $(45,000). Black distributed $50,000 to Bob on June 30, 2012.

d) Black had current E & P of $60,000 and accumulated E & P of $29,000. Black distributed a tract of land to Bob on September 15, 2012. The land had a fair market value of $80,000 and an adjusted basis of $40,000. Bob assumed the $26,000 mortgage on the land. What are the tax consequences of the distribution to Bob? What is Bob’s basis in the stock after the distribution and what is his basis in the land?

Question 6 (25 marks)

Spa Products, a business entity, has provided the following information for 2012:

Sales $1,054,000
Cost of goods sold 403,800
Operating expenses 315,300
Rental income 100,000
Rental expenses (excluding depreciation) 31,000
Interest from City of Portland bonds 50,200
Interest from Courtland Ltd. bonds 10,000
Dividend income from an 18%-owned domestic corporation 35,600
Dividend income from a 35%-owned domestic corporation 47,200
Accounting gain on sale of land 153,000
Long-term capital gain on sale of stocks 30,300
Long-term capital loss on sale of stocks 35,800
Short-term capital gain on sale of stocks 17,500
Section 1231 gain on sale of equipment 26,300
Section 1245 gain on sale of machinery 33,300
Unrecaptured Section 1250 gain on sale of building 85,000
Accounting depreciation on machinery and equipment 203,900
Accounting depreciation on rental property 9,900
Charitable contributions 50,000
Interest expense on business loan 43,700
Interest expense on loan used to acquire City of Portland bonds 12,300
Interest expense on loan used to acquire Courtland bonds 2,500

Additional information:

• The land sold by the entity that yielded the $153,000 gain was contributed by Sophia years ago when its basis was $29,000 and its FMV was $57,000. For financial accounting purposes, the land was recorded at its fair market value.

• A total of $200,000 in rent was received in 2012: $100,000 for 2012 and $100,000 for $2013. For accounting purposes, the $100,000 for 2013 was recorded as deferred revenue.

• MACRS depreciation – rental property $ 6,300
– machinery and equipment 198,500

• Included in operating expenses are life insurance premiums of $6,000 paid on a policy for Sophia, the CEO. Spa Products is the beneficiary of the policy.

Required:

a) Assume that the entity is a C corporation and that Sophia had contributed the land in exchange for 100% of the shares of the corporation.

i. Calculate the taxable income for the entity.
ii. Can Sophia convert this C corporation into an S corporation? Fully explain your answer. If it is possible, describe the process to do so.

b) Assume that the entity is a limited liability limited partnership (LLLP) and that Sophia had contributed the land in exchange for a 60% partnership share. Sophia is a general partner and manages the LLLP. The other partners are limited partners. Identify which of the above items should be treated

i. as part of ordinary income for tax purposes.
ii. as separately-stated items for tax purposes.

Reviews

There are no reviews yet.

Be the first to review “Tax problems”

Your email address will not be published. Required fields are marked *