David and Lilly Fernandez have determined their tax liability on their joint tax return to be $1,700. They have made prepayments of $1,500 and also have a child tax credit of $2,000. What is the amount of their tax refund or taxes due?
> Grayson is in the 24 percent tax rate bracket and has the sold the following stocks in 2018: Date Purchased Basis Date Sold Amount Realized Stock A 1/23/1994 $7,250 7/22/2018 $4,500 Stock B 4/10/2018 14,000 9/13/2018 17,500 Stock C
> Matt and Meg Comer are married and file a joint tax return. They do not have any children. Matt works as a history professor at a local university and earns a salary of $64,000. Meg works part-time at the same university. She earns $31,000 a year. The co
> Matt and Lori were divorced in 2016. Pursuant to the divorce decree Matt receives $10,000 of alimony each month. Use an available tax service to determine if the alimony Matt receives is taxable. Would your answer change if Matt and Lori still live toget
> Dahlia is in the 32 percent tax rate bracket and has purchased the following shares of Microsoft common stock over the years: Microsoft common stock Date Purchased Shares Basis 7/10/2008 400 $12,000 4/20/2009 300 $10,750 1/29/2010 500
> John bought 1,000 shares of Intel stock on October 18, 2014 for $30 per share plus a $750 commission he paid to his broker. On December 12, 2018, he sells the shares for $42.50 per share. He also incurs a $1,000 fee for this transaction. a. What is John
> Hayley recently invested $50,000 in a public utility stock paying a 3 percent annual dividend. If Hayley reinvests the annual dividend she receives net of any taxes owed on the dividend, how much will her investment be worth in four years if the dividend
> Dana intends to invest $30,000 in either a Treasury bond or a corporate bond. The Treasury bond yields 5 percent before tax and the corporate bond yields 6 percent before tax. Assuming Dana’s federal marginal rate is 24 percent and her marginal state rat
> Matt recently deposited $20,000 in a savings account paying a guaranteed interest rate of 4 percent for the next 10 years. If Matt expects his marginal tax rate to be 22 percent for the next 10 years, how much interest will he earn after-tax for the firs
> Katie is a shareholder in Engineers One, a civil engineering company. This year, Katie’s share of net business income from Engineers One is $200,000. Assume that Katie’s allocation of wages paid by Engineers One to its employees is $300,000 and her alloc
> Roquan is an attorney and practices as a sole proprietor. This year, Roquan had net business income of $90,000 from his law practice. Assume that Roquan pays $40,000 wages to his employees, he has $10,000 of property (unadjusted basis of equipment he pur
> Compare how the return of capital principle applies when: (1) a taxpayer sells an asset and collects the sale proceeds all immediately, and (2) a taxpayer sells an asset and collects the sale proceeds over several periods (installment sales). If Congress
> Stephanie is 12 years old and often assists neighbors on weekends by babysitting their children. Calculate the 2018 standard deduction Stephanie will claim under the following independent circumstances (assume that Stephanie’s parents will claim her as a
> During 2018, your clients, Mr. and Mrs. Howell, owned the following investment assets: Investment Assets Date Acquired Purchase Price Broker’s Commission Paid at Time of Purchase 300 shares of IBM common 11/22/2015 $10,350 $100 200 shares of
> Fred currently earns $9,000 per month. Fred has been offered the chance to transfer for three to five years to an overseas affiliate. His employer is willing to pay Fred $10,000 per month if he accepts the assignment. Assume that the maximum foreign earn
> Trevor is a single individual who is a cash-method calendar-year taxpayer. For each of the next two years (year 1 and year 2), Trevor expects to report AGI of $80,000, contribute $8,000 to charity, and pay $2,800 in state income taxes. a. Estimate Trevo
> Anne’s marginal income tax rate is 32 percent. She purchases a corporate bond for $10,000 and the maturity, or face value, of the bond is $10,000. If the bond pays 5 percent per year before taxes, what is Anne’s annual after-tax rate of return from the b
> Joe and Jessie are married and have one dependent child, Lizzie. Lizzie is currently in college at State University. Joe works as a design engineer for a manufacturing firm while Jessie runs a craft business from their home. Jessie’s cr
> Shauna Coleman is single. She is employed as an architectural designer for Streamline Design (SD). Shauna wanted to determine her taxable income. She correctly calculated her AGI. However, she wasn’t sure how to compute the rest of her taxable income. Sh
> Tiffany is unmarried and has a 15-year-old qualifying child. Tiffany has determined her tax liability to be $3,525, and her employer has withheld $1,500 of federal taxes from her paycheck. Tiffany is allowed to claim a $2,000 child tax credit for her qua
> Camille Sikorski was divorced last year. She currently owns and provides a home for her 15-year-old daughter. Kaly lived in Camille’s home for the entire year and Camille paid for all the costs of maintaining the home. She received a salary of $105,000 a
> Demarco and Janine Jackson have been married for 20 years and have four children who qualify as their dependents (Damarcus, Janine, Michael, and Candice). The couple received salary income of $100,000, qualified business income of $10,000 from an investm
> Peggy is a rodeo clown, and this year she expended $1,000 on special “funny” clothes and outfits. Peggy would like to deduct the cost of these clothes as work-related because she refuses to wear the clothes unless she is working. Under what circumstances
> Marc and Michelle are married and earned salaries this year of $64,000 and $12,000, respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $500 from corporate bonds. Marc contributed $2,500 to an individual r
> Jeremy and Alyssa Johnson have been married for five years and do not have any children. Jeremy was married previously and has one child from the prior marriage. He is self-employed and operates his own computer repair store. For the first two months of
> L. A. and Paula file as married taxpayers. In August of this year they received a $5,200 refund of state income taxes that they paid last year. How much of the refund, if any, must L. A. and Paula include in gross income under the following independent s
> This year Evan graduated from college, and took a job as a deliveryman in the city. Evan was paid a salary of $67,300 and he received $700 in hourly pay for part-time work over the weekends. Evan summarized his expenses below. Calculate Evanâ
> Last year Acme paid Ralph $15,000 to install a new air-conditioning unit at its headquarters building. The air conditioner did not function properly, and this year Acme requested that Ralph return the payment. Because Ralph could not repair one critical
> Elroy, who is single, has taken over the care of his mother Irene in her old age. Elroy pays the bills relating to Irene’s home. He also buys all her groceries and provides the rest of her support. Irene has no gross income. a. What is Elroy’s filing sta
> Mel and Cindy Gibson’s 12-year-old daughter Rachel was abducted on her way home from school on March 15, 2018. Police reports indicated that a stranger had physically dragged Rachel into a waiting car and sped away. Everyone hoped that the kidnapper and
> Hank, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $20,000 of legal services for a client. Hank typically requires his clients to pay his bills immediately upon receipt. Assume hi
> Describe the consequences for failure to file a tax return and late payment of taxes owed.
> Using the facts from the previous problem, when should Hank send the bill if he expects his marginal tax rate to be 35 percent next year? 24 percent next year? Data from Problem 44: Hank, a calendar-year taxpayer, uses the cash method of accounting for
> All else being equal, should taxpayers prefer to exclude income or defer it? Why?
> Using the facts in problem 43, what interest rate does Surething Inc. need to offer to make Hugh indifferent between investing in the two bonds? Data from problem 43: Hugh has the choice between investing in a City of Heflin bond at 6 percent or a Sure
> Using the facts from the previous problem, when should Reese pay the bill if she expects her marginal tax rate to be 35 percent next year? 24 percent next year? Data from Problem 42: Reese, a calendar-year taxpayer, uses the cash method of accounting f
> What is a §481 adjustment, and what is the purpose of this adjustment?
> Using the facts in problem 40, if Scot and Vidia earn an additional $80,000 of taxable income, what is their marginal tax rate on this income? Ho1w would your answer differ if they, instead, had $80,000 of additional deductions? Data from problem 40: S
> Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $20,000 of legal services for a client. Manny typically requires his clients to pay his bills immediately upon receipt. Assume
> Tim is a single, cash-method taxpayer with an AGI of $50,000. In April of this year Tim paid $1,020 with his state income tax return for the previous year. During the year, Tim had $5,400 of state income tax and $18,250 of federal income tax withheld fro
> Simpson, age 45, is a single individual who is employed full-time by Duff Corporation. This year Simpson reports AGI of $50,000 and has incurred the following medical expenses: a. Calculate the amount of medical expenses that will be included with Simp
> In each of the following independent cases, indicate the amount (1) deductible for AGI, (2) deductible from AGI, and (3) neither deductible for nor deductible from AGI before considering income limitations or the standard deduction. a. Ted paid $50 rent
> This year Jack intends to file a married-joint return. Jack received $167,500 of salary, and paid $5,000 of interest on loans used to pay qualified tuition costs for his dependent daughter, Deb. This year Jack has also paid moving expenses of $4,300 and
> Betty operates a beauty salon as a sole proprietorship. Betty also owns and rents an apartment building. This year Betty had the following income and expenses. Determine Betty’s AGI and complete page 1 of Form 1040 for Betty. You may as
> Explain how cost of goods sold is treated when a business sells inventory.
> Aishwarya’s husband passed away in 2017. She needs to determine whether Jasmine, her 17-year-old stepdaughter who is single, qualifies as her dependent in 2018. Jasmine is a resident but not a citizen of the United States. She lived in Aishwarya’s home f
> Rank the following three single taxpayers in order of the magnitude of taxable income (from lowest to highest) and explain your results.
> All else being equal, would a taxpayer with passive losses prefer to have wage income or passive income?
> Jack operates a plumbing business as a sole proprietorship and uses the cash method. Besides providing plumbing services, Jack also sells plumbing supplies to homeowners and other plumbers. The sales of plumbing supplies constitute less than $20,000 per
> Discuss the treatment of suspended passive losses upon the sale of a passive activity?
> Jeremy earned $100,000 in salary and $6,000 in interest income during the year. Jeremy’s employer withheld $11,200 of federal income taxes from Jeremy’s paychecks during the year. Jeremy has one qualifying dependent child who lives with him. Jeremey qua
> Don Juan, a single taxpayer, is the sole owner, of DJ’s Inc., an S Corporation. This year, DJ’s Inc. incurred a massive $600,000 business loss, all of which is allocable to Don Juan as the sole shareholder. Assume that $600,000 loss is not limited by the
> Under what circumstances would business income from an accounting practice qualify for the deduction for qualified business income?
> Clem and Ida have been married for several years, but in 2018 they finalized their divorce. In the divorce decree, Clem agreed to deed his car to Ida and pay Ida $10,000 per year for four years (but not beyond her death). Will either of these transfers q
> Whether a business expense is “reasonable in amount” is often a difficult question. Explain why determining reasonableness is difficult and describe a circumstance where reasonableness is likely to be questioned by the IRS.
> Describe what is meant by qualified business income for purposes of the deduction for qualified business income.
> How do two taxpayers determine who has priority to claim a person as a dependent if the person is a qualifying child of both taxpayers when neither taxpayer is a parent of the child (assume the child does not qualify as a qualifying child for either pare
> Compare and contrast the different year-ends available to sole proprietorships, flow-through entities, and C corporations.
> What are some of the common examples of the conversion strategy?
> If a person meets the qualifying relative tests for a taxpayer, is that person automatically considered to be a dependent of the taxpayer?
> Benjamin, a self-employed bookkeeper, takes a CPA review course ($1,500 cost) to help prepare for the CPA exam. a. Use an available tax research service to determine if Benjamin may deduct the cost of the CPA exam course. b. Write a memo communicating th
> Using an available tax service or the Internet, identify three basic tax planning ideas or tax tips suggested for year-end tax planning. Which basic tax strategy from this chapter does each planning idea employ?
> Christopher is a cash-method, calendar-year taxpayer, and he made the following cash payments related to his business this year. Calculate the after-tax cost of each payment assuming Christopher has a 37 percent marginal tax rate. a) $500 fine for speed
> Tammy teaches elementary school history for the Metro School District. In 2018 she has incurred the following expenses associated with her job: Noncredit correspondence course on history ………………….$ 900 Teaching cases for classroom use…………………………………….1,800
> What is the kiddie tax? Explain.
> Simon lost $5,000 gambling this year on a trip to Las Vegas. In addition, he paid $2,000 to his broker for managing his $200,000 portfolio, and $1,500 to his accountant for preparing his tax return. In addition, Simon incurred $2,500 in transportation co
> Michelle operates a food truck. Indicate the amount (if any) that she can deduct as an ordinary and necessary business deductions in each of the following situations and explain your solution. a) Michelle moves her food truck between various locations o
> Five years ago, Kate purchased a dividend-paying stock for $10,000. For all five years, the stock paid an annual dividend of 4 percent before tax and Kate’s marginal tax rate was 24 percent. Every year Kate reinvested her after-tax dividends in the same
> What is the general rule for how many authorities a research memo should discuss?
> Penny, a full-time biochemist, loves stock car racing. To feed her passion, she bought a used dirt-track car and has started entering some local dirt-track races. The prize money is pretty small ($1,000 for the winner), but she really is not in it for th
> Nola, a tax novice, has a fairly simple tax question. Besides tax services, what are some sources that she can use to answer her question?
> Nitai who is single and has no dependents, was planning on spending the weekend repairing his car. On Friday, Nitai’s employer called and offered him $500 in overtime pay if he would agree to work over the weekend. Nitai could get his car repaired over t
> Through November, Cameron has received gross income of $120,000. For December, Cameron is considering whether to accept one more work engagement for the year. Engagement 1 will generate $7,000 of revenue at a cost to Cameron of $3,000, which is deductibl
> Rick, who is single, has been offered a position as a city landscape consultant. The position pays $125,000 in cash wages. Assume Rick has no dependents. Rick deducts the standard deduction instead of itemized deductions a. What is the amount of Rick’s a
> In 2018, Lisa and Fred, a married couple, have taxable income of $300,000. If they were to file separate tax returns, Lisa would have reported taxable income of $125,000 and Fred would have reported taxable income of $175,000. What is the couple’s marria
> Jake is a retired jockey who takes monthly trips to Las Vegas to gamble on horse races. Jake also trains race horses part time at his Louisville ranch. So far this year, Jake has won almost $47,500 during his trips to Las Vegas while spending $27,250 on
> Whitney received $75,000 of taxable income in 2018. All of the income was salary from her employer. What is her income tax liability in each of the following alternative situations? a. She files under the single filing status. b. She files a joint tax re
> Anwer owns a rental home and is involved in maintaining it and approving renters. During the year he has a net loss of $8,000 from renting the home. His other sources of income during the year are a salary of $111,000 and $34,000 of long-term capital gai
> In 2018, Tom and Amanda Jackson (married filing jointly) have $200,000 of taxable income before considering the following events: a) On May 12, 2018, they sold a painting (art) for $110,000 that was inherited from Grandma on July 23, 2016. The fair marke
> During the current year, Ron and Anne sold the following assets: Capital Asset Market Value Tax Basis Holding Period L stock $50,000 $41,000 > 1 year M stock 28,000 39,000 > 1 year N stock 30,000 22,000 < 1 year O sto
> George bought the following amounts of Stock A over the years: Date Purchased Number of Shares Adjusted Basis Stock A 11/21/1992 1,000 $24,000 Stock A 3/18/1998 500 9,000 Stock A 5/22/2007 750 27,000 On October 12, 2018, he sol
> Alan inherited $100,000 with the stipulation that he “invest it to financially benefit his family.” Alan and Alice decided they would invest the inheritance to help them accomplish two financial goals: purchasing a Park City vacation home and saving for
> In addition to cash contributions to charity, Dean decided to donate shares of stock and a portrait painted during the earlier part of the last century. Dean purchased the stock and portrait many years ago as investments. Dean reported the following reci
> Dennis is currently considering investing in municipal bonds that earn 6 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 8 percent. If Dennis’ tax rate is 22 percent, which bond should he choose? Which bond should he choose
> Ray Ray made the following contributions this year. Determine the maximum amount of charitable deduction for each of these contributions ignoring the AGI ceiling on charitable contributions and assuming that the American Heart Association plans to sell
> This year, Major Healy paid $40,000 of interest on a mortgage on his home (Major Healy borrowed $800,000 to buy the residence in 2015; $900,000 original purchase price and value at purchase), $6,000 of interest on a $120,000 home equity loan on his home
> Describe the computation of the limit placed on the business interest deduction. Is the disallowed interest ever deductible?
> Lanny and Shirley divorced in 2018 and do not live together. Shirley has custody of their child, Art, and Lanny pays Shirley $22,000 per year. All property was divided equally. a. How much should Shirley include in income if Lanny’s payments are made in
> Doug Jones submitted his 2018 tax return on time and elected to file a joint tax return with his wife, Darlene. Doug and Darlene did not request an extension for their 2018 tax return. Doug and Darlene owed and paid the IRS $124,000 for their 2018 tax ye
> Orie and Jane, husband and wife, operate a sole proprietorship. They expect their taxable income next year to be $450,000, of which $250,000 is attributed to the sole proprietorship. Orie and Jane are contemplating incorporating their sole proprietorship
> Louis files as a single taxpayer. In April of this year he received a $900 refund of state income taxes that he paid last year. How much of the refund, if any, must Louis include in gross income under the following independent scenarios? Assume the stand
> Using the facts from the previous problem, how would your answer change if Manny’s after-tax rate of return were 8 percent? Data from Problem 41: Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late D
> Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $20,000 bill from her accountant for consulting services related to her small business. Reese can pay the $20,000 bill any ti
> This year Amber purchased a factory to process and package landscape mulch. Approximately 20 percent of management time, space, and expenses are spent on this manufacturing process. a) At the end of the year, Amber’s accountant indica
> Nicole’s business uses the accrual method of accounting and accounts for inventory with specific identification. In year 0, Nicole received a $4,500 payment with an order for inventory to be delivered to the client early next year. Nicole has the invento
> Renee operates a proprietorship selling collectibles over the web, and last year she purchased a building for $24 million for her business. This year, Renee’s proprietorship reported revenue of $85 million and incurred total expenses of $78.1 million. He
> Assume Sarah is a cash-method calendar-year taxpayer, and she is considering making the following cash payments related to her business. Calculate the after-tax cost of each payment assuming she has a 37 percent marginal tax rate. a) $2,000 payment for
> If taxpayers are not allowed to claim deductions for dependency exemptions, is it necessary to determine who qualifies as a taxpayer’s dependents? Briefly explain.
> Heather paid $15,000 to join a country club in order to meet potential clients. This year she paid $4,300 in greens fees when golfing with clients and an additional $5,700 paid when Heather held business meetings with clients in the clubhouse conference
> Ralph operates a business that acts as a sales representative for a large firm that produces and sells precious metals to electronic manufacturers. Ralph contacts manufacturers and convinces them to sign contracts for delivery of metals. Ralph earns a co
> Indicate the amount (if any) that Josh can deduct as an ordinary and necessary business deduction in each of the following situations and explain your solution. a) Josh borrowed $50,000 from the First State Bank using his business assets as collateral.
