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All Textbook Solutions for CONCEPTS IN FED.TAX.,2020-W/ACCESS

Briefly state Adam Smiths four requirements for a good tax system.Based on the discussion in the chapter, evaluate how well each of these taxes meets Adam Smiths four requirements: a. Income tax b. Employment taxes 3DQ Based solely on the definitions in the chapter, is the sales tax a proportional, regressive, or progressive tax? Explain, and state how the tax might be viewed differently.As stated in the text, the federal income tax is the largest revenue-producing tax in use in the United States. Why do you think the income tax produces more revenue than any other tax?How are federal, state, and local income taxes collected by the government? Consider the cases of an employee and a self-employed taxpayer.How is a sales tax different from an excise tax?Who is responsible for collecting sales and excise taxes? Who actually pays the tax?9DQ 10DQ 11DQ 12DQ 13DQ LO3 Identify three primary sources of tax law.Explain why the following statement is not necessarily true: If the IRS disagrees, Ill take my case all the way to the Supreme Court.What is the federal income tax base?17DQ 18DQ How is gross income different from income?LO4 What are the three basic tests that an expense must satisfy to be deductible?21DQ LO4 How is a transaction loss different from an annual loss?How does the legislative grace concept help identify amounts that qualify for deduction?24DQ Explain the pay-as-you-go system.26DQ 27DQ 28DQ 29DQ 30DQ What are the three types of IRS examinations?32DQ 33DQ 34DQ 35DQ 36DQ 37DQ LO7 Evaluate the following statement: The goal of good tax planning is to pay the minimum amount of tax.It has often been said that only the rich can benefit from professional tax planning. Based on the information presented in this chapter, why is this statement at least partially true?40P 41P 42P 43P 44P 45P 46P LO2 Joe Bob is an employee of Rollo Corporation who receives a salary of 14,000 per month. How much Social Security tax will be withheld from Joe Bobs salary in a. March? b. November?48P LO2 Gosney Corporation has two employees. During the current year, Clinton earns 80,000 and Trahn earns 150,000. How much Social Security tax does Gosney have to pay on the salaries earned by Clinton and Trahn?50P Darrell is an employee of Whitneys. During the current year, Darrells salary is 136,000. Whitneys net self-employment income is also 136,000. Calculate the Social Security and self-employment taxes paid by Darrell and Whitney. Write a letter to Whitney in which you state how much she will have to pay in Social Security and self-employment taxes and why she owes those amounts.52P 53P LO4 Explain why each of the following expenditures is or is not deductible: a. Lumbar, Inc., pays 12,000 as its share of its employees Social Security tax. The 12,000 is deductible. b. Leroy pays a cleaning service 250 per month to clean his real estate office. The 250 is deductible. c. Janice pays a cleaning service 75 per month to clean her personal residence. The 75 is not deductible. d. Leyh Corporation purchases land to use as a parking lot for 35,000. The 35,000 is not deductible. e. Martin spends 50 per month on gasoline for the car he uses to drive to his job as a disc jockey. The 50 is not deductible.55P 56P 57P 58P 59P Michiko and Saul are planning to attend the same university next year. The university estimates tuition, books, fees, and living costs to be 12,000 per year. Michikos father has agreed to give her the 12,000 she needs to attend the university. Saul has obtained a job at the university that will pay him 14,000 per year. After discussing their respective arrangements, Michiko figures that Saul will be better off than she will. What, if anything, is wrong with Michikos thinking?Inga, an attorney, completed a job for a client in November 2019. If she bills the client immediately, she will receive her 10,000 fee before the end of the year. By delaying the billing for a month, she will not receive the 10,000 until 2020. What factors should Inga consider in deciding whether she should delay sending the bill to the client?62P 63P Leroy and Amanda are married and have three dependent children. During the current year, they have the following income and expenses: Salaries 120,000 Interest income 45,000 Royalty income 27,000 Deductions for AGI 3,000 Deductions from AGI 9,000 a. What is Leroy and Amandas current year taxable income and income tax liability? b. Leroy and Amanda would like to lower their income tax. How much income tax will they save if they validly transfer 5,000 of the interest income to each of their children? Assume that the children have no other income and that they are entitled to a 1,050 standard deduction.65P 66P 67IIP 68IIP 69IIP 70IIP 73TA 74TA 75TA 76DC 77DC Bonnie is married and has one child. She owns Bonnies Rib Joint, which produces a taxable income of approximately 120,000 per year. a. Assume that Bonnies taxable income is 40,000 without considering the income from the rib joint. How much tax will she pay on the 120,000 of income from the rib joint? b. You work for the firm that prepares Bonnies tax return. Bonnie has asked the partner for whom you work to advise her on how she might lower her taxes. The partner has assigned you this task. Draft a memorandum to the partner that contains at least two options Bonnie could use to lower her taxes. For each option, explain the calculations that support the tax savings from your recommendation.79EDC 1DQ 2DQ What is an arms-length transaction? What is its significance to income taxation?4DQ 5DQ 6DQ 7DQ 8DQ 9DQ 10DQ 11DQ 12DQ 13DQ 14DQ 15DQ 16DQ 17DQ 18P 19P Sheila, a single taxpayer, is a retired computer executive with a taxable income of 100,000 in the current year. She receives 30,000 per year in tax-exempt municipal bond interest. Adam and Tanya are married and have no children. Adam and Tanyas 100,000 taxable income is comprised solely of wages they earn from their jobs. Calculate and compare the amount of tax Sheila pays with Adam and Tanyas tax. How well does the ability-to-pay concept work in this situation?21P 22P 23P 24P 25P 26P 27P 28P 29P 30P 31P 32P 33P 34P 35P 36P 37P 38P 39P 40P Chelsea, who is single, purchases land for investment purposes in 2014 at a cost of 22,000. In 2019, she sells the land for 38,000. Chelseas taxable income without considering the land sale is 100,000. What is the effect of the sale of the land on her taxable income, and what is her tax liability?42P 43P 44P 45P 46P 47P 48P 49P 50P 51P 52P 53P 54P 55P 56P 57P 58P 59P 60P Determine the taxpayers adjusted basis in each of the following situations. If any changes are made in the original basis of the asset, explain why they are necessary. a. Simone purchases 300 shares of Wilguess, Inc., stock in 2017 for 6,300. In 2017 and 2018, Wilguess pays cash dividends of 2 per share. In 2019, Wilguess pays a 40 percent stock dividend (nontaxable), and Simone receives an additional 120 shares of stock. b. Symbol Corporation purchases a building in 2016 at a cost of 240,000. Annual maintenance costs on the building are 80,000. In 2018, Symbol adds a wing to the building at a cost of 60,000. In 2019, the building is painted at a cost of 25,000. Symbol deducts 4,800 in depreciation in 2016, 7,300 in 2017, and 8,100 in 2018 and 2019. c. Lorissa purchases land as an investment in 2017 for 33,000. Property taxes on the property are 400 per year. In 2018, Lorissa is assessed 2,000 by the county assessor for her share of a sidewalk that the county builds adjacent to the land. Lorissa pays the assessment in 2019. d. The Barton Brothers Partnership purchases a computer in 2017 for 8,000. The partnership elects to deduct the entire cost of the computer in 2017. In 2019, Barton Brothers spends 300 to repair the computer.62P 63IIP 64IIP 65IIP Jerry and his wife, Joanie, own a successful concrete company that is organized as a corporation. Jerry spends all his time running the company, whereas Joanie has a full-time job as a legal secretary. The corporation pays Joanie a salary of 45,000 a year as vice president.67IIP 68IIP 69IIP 70IIP 71IIP 79DC 80DC 81TPC 1DQ 2DQ 3DQ 4DQ 5DQ 6DQ 7DQ 8DQ 9DQ 10DQ 11DQ 12DQ 13DQ 14DQ 15DQ 16DQ 17DQ 18DQ 19DQ 20DQ 21DQ Are all losses realized on the sale of capital assets deductible?23DQ 24DQ 25DQ 26DQ 27DQ 28DQ 29DQ 30P 31P 32P 33P How much taxable income should each of the following taxpayers report? a. Kimo builds custom surfboards. During the current year, his total revenues are 90,000, and he incurs 30,000 in expenses. Included in the 30,000 is a 10,000 payment to Kimos five-year-old son for services as an assistant. b. Manu gives hula lessons at a local bar. During the current year, she receives 9,000 in salary and 8,000 in tips. In addition, she engages in illegal behavior, for which she receives 10,000.35P 36P 37P 38P 39P Minnie owns a qualified annuity that cost 78,000. The annuity is to pay Minnie 650 per month for life after she reaches age 65. Minnie turns 65 on September 28, 2019, and receives her first payment on November 1, 2019. a. How much gross income does Minnie have from the annuity payments she receives in 2019? b. Shortly after receiving her payment on October 1, 2034, Minnie is killed in an automobile accident. How does the executor of Minnies estate account for the annuity on her return for the year 2034? c. Assume that the accident does not occur until November 1, 2043. How does the executor of Minnies estate account for the annuity on her 2043 return?41P 42P 43P 44P 45P 46P Devi is the chief executive officer of Nishida Limited. Devi owns 20 percent of the common stock of Nishida. During the current year, Devis salary is 60,000 and he receives a 30,000 bonus. Nishida has taxable income of 200,000 and pays 80,000 in cash dividends. How much gross income does Devi have if a. Nishida is a corporation? b. Nishida is an S corporation?48P 49P 50P 51P 52P 53P 54P 55P 56P 57P 58P 59P 60P 61P 62P Determine whether the taxpayer has income that is subject to taxation in each of the following situations: a. Capital Motor Company is going out of business. As a result, June is able to purchase a car for 12,000; its original sticker price was 25,000. b. Chuck is the sole owner of Ransom, Inc., a corporation. He purchases a machine from Ransom for 10,000. Ransom had paid 50,000 for the machine, which was worth 30,000 at the time of the sale to Chuck. c. Gerry is an elementary school teacher. She receives the Teacher of the Month Award for February. As part of the award, she gets to drive a new car supplied by a local dealer for a month. The rental value of the car is 400 per month. d. Payne has worked for Stewart Company for the last 25 years. On the 25th anniversary of his employment with Stewart, he receives a set of golf clubs worth 1,200 as a reward for his years of loyal service to the company. e. Anna enters a sweepstakes contest that was advertised on the back of a cereal box, and wins 30,000. The prize will be paid out in 30 annual installments of 1,000. She receives her first check this year. f. Terry buys an antique vase at an estate auction for 780. Upon returning home, she accidentally drops the vase and finds that a 100 bill had been taped inside it.64P 65P 66P 67P 68P 69P 70P 71P 72P 73P 74P 75P 76P During the last five months of the year, Dwana opens a new Internet telecommunications business called Dwan-Com. Dwan-Com bills 50,000 of revenues, but receives only 40,000 cash. Dwan-Com incurs 3,000 of supply expenses, and 41,000 of labor costs. Dwan-Com pays for 2,200 of the supplies and 38,000 of the labor costs in the current year. a. What is Dwan-Coms taxable income if it elects the cash method of accounting? b. What is Dwan-Coms taxable income if it elects the accrual method of accounting? c. What method of accounting do you recommend that Dwan-Com elect?78P 79P 80P 81P Lorene, Inc., owns an apartment complex. The terms of Lorenes lease agreement require new tenants to pay the first and last months rent and a cleaning deposit at the inception of the lease. The cleaning deposit is returned when tenants move out and leave their apartment in good condition. If the apartment is not in good condition, Lorene hires a cleaning company and uses the tenants deposit to pay the cleaning bill, with any excess deposit returned. During the current year, Lorene receives monthly rents totaling 28,000, last months rent deposits from new tenants of 8,000, and cleaning deposits of 7,000. Lorene keeps 5,000 in cleaning deposits to pay the cleaning company bill on apartments that are not left in good shape (the 5,000 is the actual cost that is paid in cash to the cleaning company) and returns 4,000 in deposits. Lorenes expenses related to the rental property (other than the cleaning costs) are 14,000. What is Lorene, Inc.s gross income from the rental property if Lorene is a cash basis taxpayer? an accrual basis taxpayer?83P 84P 85P 86P 87P 88P 89IIP 90IIP 91IIP 92IIP 93IIP 94IIP 95IIP 96IIP 97IIP 105DC Kerry is employed as a ticket vendor at an off-track betting parlor in New York. No credit is extended to customers, and employees are not allowed to bet on races. Kerry is a compulsive gambler and occasionally places bets without paying for them. In the past, she has always managed to cover her bets without being detected by her employer. Earlier this year, Kerry ran up 80,000 in bets that she did not pay for and won only 33,000. She was unable to cover this large loss and turned herself in to her employer. Kerry was convicted of grand larceny and sentenced to five years of probation, required to perform 200 hours of community service, and pay a 500 fine. Her employer was liable to the racetrack for the bets she had made and obtained a judgment against her for the 47,000 shortfall it had to pay because of her indiscretions. How much, if any, gross income must Kerry recognize from her illegal betting?107DC 108DC 109EDC 1DQ 2DQ 3DQ 4DQ 5DQ 6DQ 7DQ 8DQ 9DQ 10DQ 11DQ 12DQ 13DQ 14DQ 15DQ 16DQ 17DQ 18DQ 19DQ 20P 21P 22P 23P LO2 Herman inherits stock with a fair market value of 100,000 from his grandfather on March l. On May 1, Herman sells half the stock at a gain of 10,000 and invests the 60,000 proceeds in Jordan Country school bonds. The bonds annual interest rate is 6 percent which is paid on July 31 and January 31. On October 15, Herman receives a 2,200 dividend on the remaining shares of stock. How much gross income does Herman have from these transactions?LO2 Fatima inherits a rental property with a fair market value of 90,000 from her aunt on April 30. On May 15, the executor of the estate sends her a check for 7,000. A letter accompanying the check states that the 7,000 comes from the rent received on the property since her aunts death. Fatima receives 6,600 in rent on the property during the remainder of the year and pays allow able expenses of 4,200 on the property. How much gross income does Fatima have from these transactions?26P 27P 28P 29P 30P 31P 32P 33P 34P 35P 36P 37P 38P 39P 40P 41P Tia is married and is employed by Carrera Auto Parts. In 2019, Carrera established high-deductible health insurance for all its employees. The plan has a 2,700 deductible for married taxpayers. Carrera also contributes 5 percent of each employees salary to a Health Savings Account. Tias salary is 30,000 in 2019 and 32,000 in 2020. Tia makes the maximum allowable contribution to her HSA in 2019 and 2020. She received 600 from the HSA for her 2019 medical expenses. In 2020, she spends 1,400 on medical expenses from her HSA. The MSA earns 28 in 2019 and 46 in 2020. a. What is the effect of the HSA transactions on Tias adjusted gross income? b. How much does Tia have in her HSA account at the end of 2020?43P 44P 45P 46P 47P

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