taxation problems



James & Ella Kiddie file a joint tax return and have no other
dependents. Also have no itemized deductions.

Combined Salary & Wages James & Ella


Workers’ compensation Ella hurt on the job


Compensatory damages for physical injury


Punitive damages for physical injury


Cash Prize


James took a distribution from a Qualified Tuition Plan not used for
qualified higher education expenses for his grandson in the amount of $15,500
which he used to buy a boat. James contribution to the fund in 2004 was

James, is an employee of a manufacturing company, suffered a heart
attack and was unable to work for six months. He received $1,500 per month of
disability benefits for six months as a result of an employer-provided group
policy. The amount was not reflected in his W-2 but he received an information
form 1099 stating it as other income.

Ella’s father (land acquired 5/1/1980 was jointly owned with his
wife who passed on 11/1/2000) gifted on 7/1/14 to Ella a parcel of land which
cost (tax basis) the father & mother $90,000 and had a fair market value of
$130,000 at the date of gift (no gift tax was paid). Market value of the land
for the whole parcel at date of death of the Ella’s mother (11/1/2000) was $200,000.
Ella sold this land on 10/1/14 for $135,000.

Also, James received from his deceased uncle’s estate real estate
with a value at the date of his death of $250,000 on 6/15/ 14. James sold this
property on Oct 10, 2014 for $500,000.

& Ella (Stock & Art Works Jointly held) sold the following shares of
stock& art works in 2014 which

reported to them by a stock brokerage company and reported to IRS:

Date Purchased Adjusted Basis Date
Sold Sales Proceeds

S Corp. 7/25/2007 $4,800 9/25/14 $ 9,500 basis reported to IRS

O Corp. 5/17/2008 1,600 6/07 /14 1,100 basis reported to

C Corp. 1/04/2009 3,900 8/25/14 7,500 basis reported to

Corp. 11/02/2013 2,500 10/01/14 1,800 basis reported to IRS

Art Works 9/01/2010
25,000 11/01/14 175,000 basis not reported to

Answer the following questions: If no amounts put NONE

What is the adjusted gross
income line # 37 pg 1 1040?
Enter Here

What is the amount of personal
exemptions Line # 42 pg 2 1040? Enter Here $___________________

Total interest income Line # 8a
1040 pg 1 if any? Enter
Here $___________________

Total Capital Gain Sch D Line #
16 pg 2 if any? Enter Here $___________________

Total other income Line # 21
1040 pg 1 if any? Enter Here $___________________

Total of any penalty tax Line #
58 1040 pg 2 if any ?
Enter Here $___________________

Total Net Investment Income Tax
Line # 60 1040 pg. 2 if any ? Enter
Here $___________________

*Total Capital Gain Income
taxed at 15% if any? Line # 29
Enter Here $___________________

*Total Capital Gain Income
taxed at 20% if any ? Line # 32 Enter
Here $___________________

*Total Capital Gain Income
taxed at 25% if any ? Line # 38 Enter Here $___________________

*Total Capital Gain Income Taxed at 28%
if any? Line # 41 Enter Here $___________________

*From Tax Worksheet (Sch. D (1040))


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Taxation problems



31. Use the following data to calculate Chiara’s 2012 AMT base. Chiara files as a single taxpayer.
Taxable income $148,000
Positive AMT adjustments 73,000
Negative AMT adjustments 55,000
AMT preferences 30,000

34. Calculate the 2013 AMT exemption amount for the following cases for a single taxpayer, a married taxpayer filing jointly, and a married taxpayer filing separately.
Case – AMTI:
1 – $150,000
2 – 300,000
3 – 800,000

36. Angela, who is single, incurs circulation expenditures of $153,000 during 2013. She is in the process of deciding whether to expense the $153,000 or to capitalize it and elect to deduct it over a three-year period. Angela already knows that she will be subject to the AMT for 2013 at both the 26% and the 28% rates. Angela is in the 28% bracket for regular income tax purposes this year (she records regular taxable income of $153,000 before considering the circulation expenses). She expects to be in the 28% bracket in 2014 and 2015. Advise Angela on whether she should elect the three-year write-off rather than expensing the $153,000 in 2013.

40. Geoff incurred $900,000 of mining and exploration expenditures. He elects to deduct the expenditures as quickly as the tax law allows for regular income tax purposes.
a. How will Geoff’s treatment of mining and exploration expenditures affect his regular income tax and AMT computations for the year?
b. How can Geoff avoid having AMT adjustments related to the mining and exploration expenditures?
c. What factors should Geoff consider in deciding whether to deduct the expenditures in the year incurred?

45. Freda acquired a passive activity this year for $870,000. Gross income from operations of the activity was $160,000. Operating expenses, not including depreciation, were 122,000. Regular income tax depreciation of $49,750 was computed under MACRS. AMT depreciation, computed under ADS, was $41,000. Compute Freda’s passive loss deduction and passive loss suspended for regular income tax purposes and for AMT purposes.


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Taxation problems



1)Built-in gains tax. Theta Corporation formed 15 years ago.
In its first year, it elected to use the cash method of accounting and adopted
a calendar year as its tax year. It made an S election on August 15 of last
year, effective for Theta’s current tax year. At the beginning of the current
year, Theta had assets with a $600,000 FMV and a $180,000 adjusted basis.
During the current year, Theta reports taxable income of $400,000.

a) In the current year, Theta collects all $200,000 of
accounts receivable outstanding on January 1 of the current year. The
receivables had a zero adjusted basis. –

b) On February 1, Theta sells automobile for $3,500. The
automobile had a $2,000 adjusted basis and a $3,000 FMV on January 1 of the
current year. Theta claimed $800 of MACRS depreciation on the automobile in the
current year.

c) On March 1, Theta sells land (a Sec. 1231 asset) that it
held three years in anticipation of building its own office building for a
$35,000 gain. The land had a $45,000 FMV and a $25,000 adjusted basis on
January 1 of the current year.

d) In the current year, Theta paid $125,000 of accounts
payable outstanding on January 1 of the current year. All the payables are
deductible expenses. What is the amount of theta’s built-in gains tax liability?


2) Mike and Nancy are equal
shareholders in MN Corporation, an S corporation. The corporation, Mike and
Nancy are calendar-year taxpayers. The corporation has been an S corporation
during its entire existence and thus has no accumulated E&P. The
Shareholders have no loans to the corporation. The corporation incurred the
following items in the current year:


Cost of goods sold 140,000 Dividends on corp. investments 10,000
Tax-exempt 3,000 Section 1245 gain (recapture)
on 22,000
equiptment sale Section 1231 gain on equipt.
sale 12,000
Long-term capital gain on
stock sale 8,000
Long-term capital loss on
stock sale 7,000
Short-term capital loss
on stock sale 6,000 Depreciation
Salary to Nancy 20,000
Meals & entertainment
expenses 7,800

Interest expense on loans allocable
Business debt 32,000
Stock investments 6,400
Tax-exempt bonds 1,800
Principle payment on
business loan 9,000
Charitable contributions 2,000
Distributions to
shareholders 30,000
($15,000 ea.)

a. Compute the S corporation’s ordinary
income and separately stated items.

b. Then show Mikes’s and Nancy’s shares
of the items in part a.


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