Description

Chapter: 2 -Problem: 72 >> Identify the tax issues or problems suggested by the following situation.On his 2014 tax return, Stewart inadvertently overstates deductions in excess of 25 percent of the adjusted gross income on his return. In 2019, the IRS audits Stewart and the agent proposes a deficiency of $1,000.
Answer Preview: Based on the given situation, the following tax issues or problems can be identified: Overstating De…

, Chapter: 11 -Problem: 24 >> Susanna is single with taxable income in 2019 of $188,225 of which $130,000 is attributable to her consulting sole proprietorship. She paid W-2 wages of $60,000 to her employees. Compute her qualified business income deduction.
Answer Preview: $11,700. Because her taxable income exceeds the $1…

, Chapter: 10 -Problem: 28 >> Perez Corporation reports the following results for 2019:a. What is Perez Corporation’s taxable income for 2019?b. How would Perez Corporation’s taxable income change if it had a $10,000 NOL carryforward from the prior year? Transcribed Image Text: Gross receipts from operations Operating expenses D
Answer Preview: a. $45,500 taxable income. $120,000 - $80,000 + $38,000 - $7,800 charitable contributions - $24,700 …

, Chapter: 10 -Problem: 26 >> Velvet Corporation has revenues of $340,000 and deductible expenses of $350,000. It also received a $40,000 dividend from a corporation in which it owns 10 percent. What is the corporation’s taxable income for 2019?
Answer Preview: $15,000. $340,000 - $350,000 + $40,000 = $30,000 of taxable in…

, Chapter: 1 -Problem: 66 >> Go to the IRS website and click on About IRS, and then click on Tax Statistics. What sub headings appear under the “Statistics of Income”?
Answer Preview: About SOI, Disseminatio…

, Chapter: 1 -Problem: 4 >> Define tax expenditure.
Answer Preview: Tax expenditures can take the form of special exc…

, Chapter: 4 -Problem: 29 >> Four years ago, Handcock Corporation granted 300 SARs to Maria as a bonus. Handcock’s stock was worth $20 a share on the date of grant. Maria exercises her SARs this year when the stock is worth $60 a share.a. How much income should Maria have recognized in the year she received the SARs?b. How much income does Maria recognize when she exercises the SARs?c. If Maria is in the 24 percent marginal t
Answer Preview: a. Zero. There is no income when the SARs are granted. b. $12,000 ordinary income recogni…

, Chapter: 11 -Problem: 4 >> Describe the new limitation for net business losses. What are the threshold amounts for 2019?
Answer Preview: This new limitation applies to the amount of net businesses losses a…

, Chapter: 2 -Problem: 40 >> Denise files her 2019 tax return on February 4, 2020. If there is no material understatement of income on her return and the return is properly signed and filed, when does the statute of limitations expire for Denise’s 2019 tax return?
Answer Preview: For Denise's 2019 tax return, the statute of limitations typically expires three years fr…

, Chapter: 2 -Problem: 44 >> Cynthia and Howard, married taxpayers filing a joint return, have $100,000 in taxable income in 2019. They have 4 children (ages 4 through 12) who have no income that is taxable. If they can legally shift $2,000 in taxable income to each child, how much does the family save in taxes?
Answer Preview: Tax on $100,000 for a married couple filing a joint return [($100,000 - $78,950) x 22%…

, Chapter: 1 -Problem: 68 >> Search the IRS website for TCE. Briefly describe this program. Consult the IRS website (www.irs.gov).
Answer Preview: Tax Counseling for the Elderly (TCE) program offers free tax help for all tax…

, Chapter: 4 -Problem: 12 >> Identify the type of IRA (Roth or traditional) that would be best for a taxpayer in each of the following circumstances:a. Sharon believes she will be in a higher tax bracket when she withdraws the money in retirement.b. Ken believes he will be in the same or a lower tax bracket in retirement.c. Susan wants to use her retirement savings to build her estate to pass to her children.
Answer Preview: a. Sharon should use a Roth IRA because the earnings are t…

, Chapter: 4 -Problem: 26 >> Luis received 400 shares of his employer’s stock as a bonus. He must return the stock to the company if he leaves before the 5-year vesting period ends. The fair market value of the stock at the time it was issued was $20,000. After five years, the stock vests when it has a fair market value of $75,000. Two years after vesting, Luis sells the stock for $100,000.a. If Luis makes no election, how mu
Answer Preview: a. (1) zero; (2) $75,000; (3) $25,000. Luis will not recognize any income until the s…

, Chapter: 5 -Problem: 18 >> Collin pledged a $5,000 gift to his church’s building fund. He has 125 shares of stock that he purchased six years ago for $100 per share. They are currently worth $40 per share. Collin plans to give the stock to the church to satisfy his pledge. What advice do you have for Collin?
Answer Preview: A ceiling is a maximum deduction that can be claimed in any one year; for example, only cash charita…

, Chapter: 7 -Problem: 52 >> Robert Lento, the sole proprietor of a consulting business, has gross receipts of $600,000 in 2019. Expenses paid by his business areRobert purchased a new car for his business on May 15 for $50,000. He also purchased $50,000 of new 5-year equipment and $238,000 of 7-year fixtures on August 1. Robert drove the car 10,000 miles (8,000 for business and 2,000 personal miles). He paid $200 for busines
Answer Preview: a. Roberts net income from his business is $68,660 b. Robert must pay $9,701 in self-employment tax. …

, Chapter: 1 -Problem: 33 >> If a taxpayer has $140,000 of employee salary, how much will be withheld for the Social Security and Medicare taxes in 2019?
Answer Preview: 10,269 80 $132,900 $140…

, Chapter: 5 -Problem: 22 >> Explain the deduction that was allowed prior to 2018 if a taxpayer claimed someone as a dependent. Which relatives could qualify for this deduction and which  did not qualify? When will this deduction be reinstated?
Answer Preview: Each taxpayer providing the requisite support for a dependent w…

,

, Chapter: 7 -Problem: 37 >> Kleer Corporation (a calendar-year corporation) purchased and placed in service in 2019 a $58,000 new automobile, $400,000 of new furniture, and a $900,000 warehouse (of which $110,000 was for the land) on October 1. Compute the maximum depreciation deduction for the 2019.
Answer Preview: Auto Furniture Wa…

, Chapter: 6 -Problem: 33 >> Yuma Corporation owns a parking lot adjacent to its office building for which it incurs $9,000 of total parking expenses. Yuma’s parking lot has 120 spots  are used by its customers and employees in which they can park for free. Yuma usually has 66 employees parking in the lot in non-reserved spots during normal business hours  a typical business day. How much of the $9,000 9,000 parking expenses
Answer Preview: $4,050 is deductible. 66/1…

, Chapter: 9 -Problem: 10 >> Explain the functional-use test. Explain the taxpayer-use test.
Answer Preview: Charlie transferred his land and the sports car for his …

, Chapter: 12 -Problem: 34 >> Joan is 15 and a dependent of her parents. If she has $5,000 income from her trust fund this year, how much income tax will she pay for 2019 if her parents  $150,000 of taxable income?
Answer Preview: $5,000 - $1,100 standard deduction for dependent = $3,900 taxable income. Her net un…

, Chapter: 1 -Problem: 50 >> June and John decide to form a business. They each plan to contribute $20,000 in exchange for a 50 percent interest in the business. They will then take out a bank loan for $30,000 to cover the balance of their working capital needs. They expect that the business will make a profit of $64,000 in the first year and that it will not make any cash distributions that year. Excluding the business incom
Answer Preview: The answer is the same as problem 49 because June and John are taxed fully on their shares of income …

, Chapter: 3 -Problem: 69 >> Identify the issues or problems suggested by the following situations. State each issue as a question. While walking through the parking lot, Nelson finds a $50 bill on the ground. No one else is around, so Nelson picks it up and keeps it.
Answer Preview: When Nelson finds a $50 bill on the ground and no one else is around, he decides …

, Chapter: 4 -Problem: 34 >> Carrie owns a business that she operates as a sole proprietorship. The business had a net profit of $25,000 in 2019. This is Carrie’s only earned income.a. How much must she pay for self-employment taxes?b. How much can she deduct on her tax return?c. If the business had a net loss of $10,000 (instead of a $25,000 profit), how much in self-employment taxes must Carrie pay?
Answer Preview: a. $3,532. ($25,000 x 92 35% x 15 3%) = …

, Chapter: 12 -Problem: 49 >> Benjamin has made no previous taxable gifts. Determine his gift tax if he makes $14,000,000 (after annual exclusions) in taxable gifts in 2019.
Answer Preview: $1,040,000. $345,800 + …

, Chapter: 2 -Problem: 49 >> Kimo Company is a cash-basis, calendar-year sole proprietorship. The owner, Karina, is in the 24 percent marginal tax bracket this year. Kimo owes a $15,000 expense that it may pay before the end of this year or in January of next year.a. If Karina expects her marginal tax rate to be 24 percent next year, should Kimo pay the expense this year or next? Use a 7 percent discount factor to explain you
Answer Preview: a. Kimo should pay the expense in this year. Because Karinas marginal tax rate is expected to be the …

, Chapter: 7 -Problem: 40 >> Fida Corporation (a calendar-year taxpayer) purchased a new car at a cost of $65,000 for use in its business in 2019. Compute the depreciation deductions  this car for 2019, 2020, and 2021.
Answer Preview: $18,100 for 2019; $15,008 for 2020; $9,005 for 2021. …

, Chapter: 4 -Problem: 31 >> Nick, age 53, is single and has AGI of $68,000. He contributes $5,000 to his IRA in 2019.a. How much can Nick deduct if he is not covered by an employer-sponsored qualified retirement plan?b. How much can Nick deduct if he is covered by an employer-sponsored qualified retirement plan?
Answer Preview: a. $5,000. No phase-out when he is not covered …

, Chapter: 8 -Problem: 48 >> Kevin, a single individual, has $180,000 income from salary in 2019 plus the following recognized gains: a $9,000 long-term capital gain on the sale of a painting, a $10,000 unrecaptured Section 1250 gain on realty, and a $25,000 gain on the sale of bonds.a. What is Kevin’s 2019 tax liability?b. How would your answer change if his salary income was $550,000?
Answer Preview: To calculate Kevin's 2019 tax liability, we need to determine his taxable income and then apply the relevant tax rates. For this purpose, I'll assume that Kevin is a single individual and uses the sta…

, Chapter: 12 -Problem: 29 >> In 2019, Marah gives $20,000 cash to Sam, $60,000 of stock to Craig, and $100,000 of bonds to Lynn. In the same year, Marah’s husband, Bryan, gives land valued at $120,000 to Jerry.a. What are Marah and Bryan’s taxable gifts if they do not elect gift splitting?b. What are the couple’s taxable gifts assuming the couple elects gift splitting?
Answer Preview: a. $240,000 combined taxable gifts. Marah: ($20,000 $15,000) + ($60,000 - $…

, Chapter: 4 -Problem: 24 >> Kevin is an employee of One Hour Dry Cleaners, Inc. All employees of One Hour are eligible for a 40 percent discount on their dry cleaning. During the year, Kevin paid $300 for cleaning that normally would have cost $500. Does Kevin have any taxable income as a result of this discount?
Answer Preview: Yes, $100 is taxable. The excludable discount …

, Chapter: 1 -Problem: 55 >> Jeremy is setting up a service business. He can either operate the business as a sole proprietorship or he can incorporate as a regular C corporation. He expects that the business will have gross income of $80,000 in the first year with expenses of $12,000 excluding the following. He plans to take $30,000 from the business for living expenses as a salary. Compare his tax costs for 2019 considering
Answer Preview: Based solely on income taxes, Jeremy should not incorporate because his taxes will be $4,779 50 ($9,…

, Chapter: 4 -Problem: 36 >> Daniel owns a business that he operates as a sole proprietorship. The business had a net profit of $180,000 in 2019. This is Daniel’s only earned income.a. How much must he pay for self-employment taxes?b. How much can he deduct on his tax return?
Answer Preview: a. $21,301. $180,000 x 92 35% = $166,230 x 2 9% = $4,…

, Chapter: 10 -Problem: 29 >> Wang Corporation reports the following results for 2019: In addition, Wang Corporation has a $5,000 NOL carryforward available from 2018. What is Wang Corporation’s taxable income for 2019? Transcribed Image Text: Gross receipts from operations Operating expenses Dividends from 30% owned corporation
Answer Preview: $28,250 taxable income. $150,000 - $145,000 + $100,000 - $10,000 ch…

, Chapter: 5 -Problem: 19 >> What is a casualty loss? Explain the limits that apply to deductibility of this type of loss.
Answer Preview: A casualty loss results from a sudden and unexpected disaster such as a wildfir…

, Chapter: 12 -Problem: 21 >> Determine the credit for the gift and estate tax exclusion if the indexed exclusion in 2020 is $11,700,000.
Answer Preview: $4,625,8…

, Chapter: 4 -Problem: 27 >> Five years ago, Cargo Corporation granted Mark a nonqualified stock option to buy 3,000 shares of Cargo common stock at $10 per share exercisable for five years. At the date of the grant, Cargo stock was selling for $9 per share. This year, Mark exercises the option when the price is $50 per share.a. How much income should Mark have recognized in the year the option was granted?b. How much income
Answer Preview: a. Zero. No income is recognized when the option is granted because the option …

, Chapter: 12 -Problem: 50 >> Steven had a taxable estate of $14,850,000 when he died in 2019. If he had no prior taxable gifts, what is his net estate tax liability?
Answer Preview: $1,380,000. Tax on taxable estate of $14,850,000: $345,800 + [($14,850…

, Chapter: 2 -Problem: 45 >> Sandra and Nick, married taxpayers filing a joint return, have $180,000 in taxable income in 2019. They have 3 children (ages 6 through 11) who have no income that is taxable. If they can legally shift $2,000 in taxable income to each child, how much does the family save in taxes?
Answer Preview: Tax on $180,000 for a married couple filing joint return [($180,000 - $168,400) x 24%] …

, Chapter: 4 -Problem: 33 >> Jennifer, age 35, is single and an active participant in her employer’s qualified retirement plan. Compute the maximum Roth IRA contribution that she can make in 2019 ifa. her adjusted gross income is $140,000.b. her adjusted gross income is $59,000.c. her adjusted gross income is $38,000 and she makes a $2,000 contribution to a traditional IRA.
Answer Preview: a. Zero. Her adjusted gross income exceeds $137,000 b. …

, Chapter: 1 -Problem: 34 >> Determine Amy’s taxable income for 2019 if she has $40,000 of salary income, is single, and claims the standard deduction.
Answer Preview: Taxable income …

, Chapter: 12 -Problem: 36 >> Cindy, an 18-year-old full-time student, has $5,100 interest income from a trust established by her grandparents. Cindy also earned $6,000 working at a part-job. She lives at home with her parents and has no itemized deductions.a. What is Cindy’s taxable income and how much income tax does she owe for 2019?b. How would your answers change if Cindy were age 24?c. How much tax would be saved if she
Answer Preview: a. $512. Cindys standard deduction is $6,350 ($6,000 earned income + $350). …

, Chapter: 2 -Problem: 42 >> Alison accidentally omitted $40,000 of gross income from the restaurant she owned on her 2018 tax return. The return showed gross income of $150,000 when filed on October 15, 2019. When can the IRS no longer pursue Alison with the threat of collection of the related tax, interest, and penalties (assuming there was no fraud)?
Answer Preview: October 15, 2025. The $40,000 of gross income inadvertently omitted …

, Chapter: 4 -Problem: 13 >> James and Dean plan to start a new business but have not decided whether to organize as a partnership, an S corporation, or a C corporation. They are interested in taking advantage of any tax-free fringe benefits that may be available to them. Discuss the advantages and disadvantages from a fringe-benefit perspective of each form of business entity.
Answer Preview: Owners who are employees of a C corporation are eligible for all the employee fringe benefits discus…

, Chapter: 2 -Problem: 46 >> Maria and Mario, married taxpayers filing a joint return, purchased 10,000 shares of Striker stock 11 months ago for $10 per share. This stock is now trading at $16 per share. Their regular marginal tax rate is 35 percent and their tax rate for long-term capital gains is 15 percent.a. What is their after-tax net cash flow from the sale if they sell the stock now?b. What is their after-tax net cash
Answer Preview: a. $39,000. If they sell the stock now, they will recognize a short-term …

, Chapter: 11 -Problem: 45 >> Lynn, who is single, is allocated $500,000 of income and $795,000 of deductions in 2019 from ABC Partnership. How much of this loss can Lynn deduct in 2019 what does she do with the excess loss?
Answer Preview: $255,000 deducted in 2019 and $40,000 carried forward to future years as an …

, Chapter: 8 -Problem: 55 >> Joy purchased a home in Maine on December 15, 2000 for $250,000 and lived in it full-time until she purchased a second home in Florida on October 1, 2014 for $380,000. In 2014 and 2015 she continued to have her primary residence in Maine. On October 1, 2016, however, she changed her primary residence to Florida. She needs to sell one of these homes before the end of 2019 as she needs cash for an i
Answer Preview: Joy should sell her Florida home as that is the only home …

, Chapter: 2 -Problem: 55 >> Marlin Company, a sole proprietorship owned by Miguel, must decide between two mutually exclusive projects because it lacks sufficient personnel to complete both projects. Each project takes two years to complete and the project  will be Marlin Company’s only source of taxable income for the two years. Miguel is single and expects to have ordinary taxable income from other sources each year of $50
Answer Preview: Marlin should accept Job 2 because it will result in a higher net present value. First year: Reven…

, Chapter: 5 -Problem: 2 >> Briefly explain two deductions that an individual is allowed to claim as adjustments to income.
Answer Preview: Student loan interest: Taxpayers can deduct up to $2,500 of qualified student loan interest; the ded…

, Chapter: 12 -Problem: 33 >> On January 15, 2019, Eileen, age 24, receives stock worth $30,000 as a gift from her parents. Her parents jointly purchased the stock six years ago for $14,000. During the year, Eileen receives $2,100 dividend income on the stock. In December, she sells the stock for $41,000.a. Assuming this is Eileen’s only income for the year, and her parents are in the 24 percent marginal tax bracket, how much
Answer Preview: a. $4,365 tax savings. For 2019, a zero tax rate applies to dividend inco…

, Chapter: 1 -Problem: 32 >> If a taxpayer has $40,000 of employee salary in 2019, how much will be withheld for the Social Security and Medicare taxes?
Answer Preview: $40,…

, Chapter: 1 -Problem: 38 >> Determine George and Mary’s taxable income and tax liability for 2019 if George has $65,000 and Mary has $45,000 of salary income, they have $20,000 of allowable itemized deductions, no dependents, and file a joint tax return.
Answer Preview: Taxable income = $85,600; Tax Liability = $10,549 George's salary …

, Chapter: 9 -Problem: 31 >> Jewel’s home was completely destroyed by a wildfire in 2019 in an area declared a national disaster. The building had an appraised value of $185,000 before the fire. Four years ago Jewel paid $160,000 for the house and the land, with $25,000 of the price allocated to the land.a. What is Jewel’s loss on the fire, assuming no insurance?b. What is her deductible loss if her adjusted gross income is $
Answer Preview: a. $135,000 …

, Chapter: 6 -Problem: 69 >> Marino Corporation owns a multi-level parking garage adjacent to its office building for which Marino spends $10,000 annually for maintaining this garage. The parking garage has 1,000 spots where its visitors and employees can park for free. There are 50 spots reserved for management and an additional 800 employees park in the garage in non-reserved spots during normal business hours on a typical
Answer Preview: To determine how much of the $10,000 in parking expenses Marino Corporation can deduct, we need to c…

, Chapter: 1 -Problem: 42 >> Sally and Jim are married and have taxable income in 2019 of $700,000. If they could file their income tax as single individuals, each of them would have taxable income of $350,000. Do they have a marriage  when they file their joint return? If so, what is the amount of the penalty?
Answer Preview: Yes, they have a marriage penalty of $1,7…

, Chapter: 4 -Problem: 32 >> In 2019, Elizabeth and Daniel (both age 40), a married couple with AGI of $120,000, file a joint tax return. They each contributed $6,000 to their IRAs.a. How much can they deduct if they are both active participants in qualified retirement plans?b. How much can they deduct if Elizabeth is not an active participant in a qualified retirement plan, but Daniel is an active participant in his qualifie
Answer Preview: a. $900 deduction for each of them. Due to the phase-out rules, they cannot deduct 85% [($120,0…

, Chapter: 12 -Problem: 30 >> During 2019, Cherie gives $34,000 cash to her daughter, Helen, and a remainder interest in investment land to her sister, Silvia. The remainder interest is valued at $40,000. In the same year, John, Cherie’s husband, gives Dan $18,000 in marketable securities. What is the total dollar amount of the annual gift tax exclusions available to Cherie and John for 2019 if they elect gift splitting?
Answer Preview: For the purpose of calculating the gift tax, the value of a gift is the fair market value of the pro…

, Chapter: 10 -Problem: 36 >> Jenkins Corporation had $675,000 of taxable income for 2018 and $575,000 for 2019. What is the minimum amount that it must submit for each estimated quarterly tax payment to avoid any penalty for underpayment?
Answer Preview: $575,000 …

, Chapter: 1 -Problem: 57 >> What is the maximum income tax rate that applies to the employee salary, the employment tax rate(s) on the salary, and the capital gain rate(s) on the long-term capital gains, for these four single individual taxpayers in 2019 (excluding Medicare surtaxes)?a. Employee Salary = $27,000; Capital Gain = $9,000. b. Employee Salary = $132,000; Capital Gain = $24,000. c. Employee Salary = $176,000; Capi
Answer Preview: a, b, c and d. Income Tax Rate on salary Employment Tax Rate 12% 24% 32% 35% …

, Chapter: 1 -Problem: 56 >> Carol has recently incorporated her sole proprietorship and is considering making an S election. The corporation has $200,000 of gross revenue and expenses of $75,000 before Carol’s salary. She plans to take a gross salary of $40,000 from the business and this will be her only income for the year. Compare the total tax burden for Carol and the corporation with and without the S election. Consider
Answer Preview: Based on 2019 total taxes …

, Chapter: 12 -Problem: 28 >> Ginny made the following gifts during 2019. Her husband, Ken, made no gifts during the year.• Gift of land valued at $250,000 to her husband• Gift of $20,000 in stock to her daughter• Gift of $32,000 to her sister to pay for medical expensesa. How much are Ginny’s taxable gifts if gift splitting is not elected?b. How much are Ginny’s taxable gifts if gift splitting is elected?
Answer Preview: a. If gift splitting is not elected, Ginny's taxable gifts would be calculated as follows: The gift …

, Chapter: 4 -Problem: 30 >> Larry, age 32, works for Horizon Corporation. His annual salary is $60,000 and he is not a key employee. Horizon provides the following benefits to all employees:Group term life insurance (each employee is provided with $80,000 worth of coverage that costs Horizon $120 per employee) Medical insurance (the cost of Larry’s policy is $3,900)Qualified pension plan (Horizon matches employee contributio
Answer Preview: Larry recognizes $55,829 in income and Horizon deducts $66,620. Larrys income includes his n…

, Chapter: 7 -Problem: 43 >> On June 26, 2017, Elaine purchased and placed into service a new computer system costing $8,000. The computer system was used 80 percent for business and 20 percent for personal use in both 2017 and 2018 and Elaine claimed only regular MACRS depreciation. In 2019, the computer system was used 45 percent for business and 55 percent for personal use.a. Compute the depreciation deduction for the comp
Answer Preview: a. $720 is the 2019 depreciation deduction; cost recovery recapture is $1,408 ($3,328 - $1,920). 201…

, Chapter: 1 -Problem: 30 >> Compare a C corporation to an S corporation.
Answer Preview: The principal difference between a C corporation and an S corporation is in the method of taxation. …

, Chapter: 1 -Problem: 24 >> Define gross income.
Answer Preview: The term gross income is …

, Chapter: 10 -Problem: 24 >> Mango Corporation reports the following results for 2019:What is Mango Corporation’s taxable income for 2019? Transcribed Image Text: Gross receipts from operations Operating expenses Long-term capital loss Short-term capital gain $150,000 61,000 7,000 5,000
Answer Preview: $89,000 taxable income ($150,000 - $61…

, Chapter: 5 -Problem: 4 >> Explain why Congress allows taxpayers to deduct the penalty for a premature withdrawal from a certificate of deposit?
Answer Preview: When a taxpayer makes a premature withdrawal, the b…

, Chapter: 8 -Problem: 59 >> In 2019, Gregory, a single person, had $450,000 of ordinary taxable income. He  sold Section 1202 stock at a taxable gain of $45,000, his art collection at a taxable gain of $102,000, and stock at a taxable gain of $55,000. Compare the tax result if Congress would simplify the capital gains tax provisions by having a single 20 percent capital gains rate versus the current capital gains tax provisi
Answer Preview: Under the tax provisions in effect for 2019, long-term capital gains were taxed at different rates based on an individual's taxable income. Let's calc…

, Chapter: 7 -Problem: 39 >> Londo Corporation (a calendar-year taxpayer) purchased a new car at a cost of $70,000 for use in its business in 2019. Compute the depreciation deductions for this car for 2019 and 2020.
Answer Preview: $18,100 for 2019 and $16,100 for …

, Chapter: 4 -Problem: 11 >> Your friend Mark suggested that you should open an Individual Retirement Account. He said that an IRA is a great way to save because you do not have to pay tax on the income from the investment and you get a tax deduction for your contribution. Is Mark correct? Explain.
Answer Preview: No. Under a traditional IRA, the taxpayer may qualify for a deduction bu…

, Chapter: 1 -Problem: 1 >> What is a tax? How does a tax differ from a fine?
Answer Preview: A tax is a required payment to a governmen…

, Chapter: 3 -Problem: 42 >> Stu and Harriett divorced on January 2, 2018 after eight years of marriage. Under the divorce decree, Harriett received a vacation home that was held jointly with Stu while they were married. The vacation home was acquired seven years ago for $90,000, but was worth $170,000 on the date the divorce was finalized. Additionally, Stu is required to pay Harriett $2,000 month; $1,300 is for alimony and
Answer Preview: a. $95,600. Harriet must recognize the $1,300 monthly alimony payment as ordi…

, Chapter: 5 -Problem: 23 >> If the dependency exemption deduction for claiming children as dependents on their parents’ tax return has been eliminated, then what is the purpose of preserving  rules for determining who is a dependent?
Answer Preview: The rules for determining who i…

, Chapter: 2 -Problem: 41 >> Kevin deliberately omitted $40,000 of gross income from his restaurant on his 2019 tax return. The return indicated gross income of $200,000 when filed on April 14, 2020. When can the IRS no longer pursue Kevin with the threat of collection of the related tax, interest, and penalties?
Answer Preview: The deliberate omission of $40,000 of gross income w…

, Chapter: 5 -Problem: 10 >> Which itemized deductions must exceed a basic minimum (floor) before the taxpayer’s taxable income is reduced for the excess? Contrast ceiling and  limitations for itemized deductions. Provide an example of each
Answer Preview: The following deduction must exceed …

, Chapter: 4 -Problem: 38 >> Melissa has $94,500 in salary from her full-time position and $40,000 in net income in 2019 from consulting as an independent contractor. What is her self-employment tax? What portion of this can she deduct?
Answer Preview: Melissa first multiplies her $40,000 self-employment income by …

, Chapter: 1 -Problem: 69 >> Go to www.taxfoundation.org (the website for the Tax Foundation).a. What is Tax Freedom Day?b. When were Tax Freedom Days in 2017 and 2018.
Answer Preview: (a) Tax Freedom Day is the specific day in the year that, on average, Americans stop worki…

, Chapter: 2 -Problem: 71 >> Identify the tax issues or problems suggested by the following situation.Jennifer did not file a tax return for 2008 because she honestly believed that no tax was due. In 2019, the IRS audits Jennifer and the agent proposes a deficiency of $500.
Answer Preview: The situation described suggests the following tax issues or problems: Failure to file a tax return: Jennifer did not file a tax return for the year 2…

, Chapter: 5 -Problem: 26 >> Explain the difference between a tax credit and a tax deduction?
Answer Preview: To qualify as a dependent, the dependents gross income that is su…

, Chapter: 10 -Problem: 30 >> What is a corporation’s income tax if its taxable income is $14,000,000 for 2019?
Answer Preview: $2,940…

, Chapter: 4 -Problem: 28 >> Three years ago, Netcom granted an ISO to Karen to buy 2,000 shares of Netcom stock at $6 per share exercisable for five years. At the date of the grant, Netcom stock was selling for $5 per share. This year, Karen exercises the ISO when the price is $30 per share.a. How much income should Karen have recognized in the year the ISO was granted?b. How much income does Karen recognize when she exercis
Answer Preview: a. Zero. No income is recognized when the option is granted. b. Zero. No taxable …

, Chapter: 4 -Problem: 21 >> Tom is 68 years old. His employer pays the premiums for group term life insurance coverage of $110,000. The cost for Tom’s coverage is $3,000.a. If the plan providing this coverage is nondiscriminatory and Tom is not a key employee, how much gross income does Tom have?b. How does your answer to (a) change if Tom is a key employee?c. If the plan is discriminatory, but Tom is not a key employee, wha
Answer Preview: a. Tom must include $914 in income. $110,000 - $50,000 excluded = $60,000 taxable covera…

, Chapter: 4 -Problem: 35 >> Sarah owns a business that she operates as a sole proprietorship. The business had a net profit of $138,000 in 2019. This is Sarah’s only earned income.a. How much must she pay for self-employment taxes?b. How much can she deduct on her tax return?
Answer Preview: a. $19,499. $138,000 x 92 35% = $127,433 x 15 3% = $19,498 …

, Chapter: 1 -Problem: 52 >> Clara and Charles decide to form a business. Clara plans to contribute $9,000 for a 30 percent interest and Charles plans to contribute $21,000 for a 70 percent interest. The business will borrow $20,000 to cover the balance of its working capital needs. In their business plan, Clara and Charles show that the business will have a loss of $54,000 in its first year. In the second year, however, the
Answer Preview: a. (1) The partnership does not pay any tax in years 1 or 2. (2) The S corporation does not pay any tax in years 1 or 2. (3) The C corporation pays no tax in year 1 but its year-1 loss can be carried …

, Chapter: 1 -Problem: 54 >> John and Martha are planning to be married. Both are professionals each with taxable incomes of $360,000 annually. They are deciding on a wedding date. They have two dates to choose from: December 14, 2019, or January 11, 2020. If they marry on December 14, 2019, they will have to choose between married filing separately and married filing jointly. Is there an advantage to either method of filing?
Answer Preview: Married Filing Separately: [($360,000 - $306,175) …

, Chapter: 11 -Problem: 23 >> In 2019, John is single and is the owner of a proprietorship with $650,000 of gross income and $975,000 of deductions, resulting in a $325,000 loss for the year. How much of this loss can John deduct in 2019 and what does he do with the excess loss?
Answer Preview: In 2019, John can deduct a portion of his loss against his other income subject to certain limitatio…

, Chapter: 5 -Problem: 20 >> Describe the types of expenses that were allowed as miscellaneous itemized deductions for 2017. What limitation was imposed on these expenses? When will this expense category be reinstated?
Answer Preview: Miscellaneous itemized deductions included most unreimbursed employ…

,

, Chapter: 8 -Problem: 43 >> Barbara sold three assets during 2019. How much and what kind of gain or loss does she recognize from each sale? What tax rate applies to the net gain if Barbara is a single individual with $160,000 ordinary income taxed at a 32 percent marginal tax rate?a. On February 25 she sold 200 shares of XYZ stock for $19,000. She bought that stock for $16,000 on February 23, 2018.b. On July 20 she sold an
Answer Preview: (a) $19,000 - $16,000 = $3,000 LTCG (property held>1 year); taxed at 15% (b) $30,000 - …

, Chapter: 4 -Problem: 37 >> George has $96,200 in salary from his full-time position and $43,000 in net income in 2019 from his sole proprietorship. What is his self-employment tax? What portion of this can he deduct?
Answer Preview: George pays $5,702 and deducts $2,851. George first multiplies his $43,…

, Chapter: 1 -Problem: 6 >> What is nexus?
Answer Preview: Nexus is the necessary type and d…

, Chapter: 12 -Problem: 54 >> When Godfrey died in 2019, his assets were valued as follows: The executor sold the stock two months after the decedent’s death for $5,200,000. The bonds were sold seven months after the decedent’s death for $4,630,000. What valuation should be used for the gross estate? Transcribed Image Text: Asse
Answer Preview: $11,600,000. Using the alternate valuation date gives a tot…

Additional Information

13 Reviews for Taxation For Decision Makers 2020 Textbook Questions And Answers