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Carol is a successful physician who owns 100% of her incorporated medical practice. She and her spouse, Dick, are considering the purchase of a commercial office building located near the local community hospital. If they purchase the building, Carol will move her medical practice to the new location and rent space for an arm’s length price. The rent income Carol and Dick receive will be available to absorb passive activity losses generated by other passive activities they own. The net effect of this arrangement is a reduction in their income tax liability. Will Carol and Dick’s plan work? Why or why not?
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CengageNOWv2, 1 term Printed Access Card for Hoffman/Young/Raabe/Maloney/Nellen's South-Western Federal Taxation 2018: Individual Income Taxes, 41st
- Upon Jena’s retirement, the couple plans to relocate their home close to the beach. For this purpose, they intend to buy a house near the beach and a rental property (to fund their retirement). They do not have the funds to make these purchases. Please explain to the couple the downsizing retirement strategy most appropriate to their circumstance.arrow_forwardYour client wants to purchase a residence for his aging parents, while minimizing the burden of ownership of the property for them and maximizing their enjoyment of it. Which one of the following states an advantage of titling the property in your client's name as sole owner rather than in joint tenancy with right of survivorship with his parents? A) The property will receive a step-up in basis when his parents die. B) The property will pass to his parents outside of probate. C) He will avoid gift tax liability by titling the property this way. D) His parents will have a life estate in the property if he predeceases them.arrow_forwardThe end of the year is approaching, and Maxine has begun to focus on ways of minimizing her income tax liability. Several years ago she purchased an investment in Teal Limited Partnership, which is subject to the at-risk and the passive activity loss rules. (Last year Maxine sold a different investment that was subject to these rules and that produced passive activity income.) She believes that her investment in Teal has good long-term economic prospects. However, it has been generating tax losses for several years in a row. In fact, when she was discussing last year’s income tax return with her tax accountant, he said that unless “things change” with respect to her investments, she would not be able to deduct losses this year. a. What was the accountant referring to in his comment? b. You learn that Maxine’s current at-risk basis in her investment is $1,000 and that her share of the current loss is expected to be $13,000. Based on these facts, how will her loss be treated?c. After…arrow_forward
- Harold and Mavone plan to purchase furniture, appliances, some heirloom artifacts, as well as new woodworking and pottery-making equipment to furnish a renovated heritage home in Brazos de Dios, Texas, that they have recently purchased. The hobby equipment is a questionable purchase economically, since the couple plans to sell their artifacts online for a secondary retirement income. Estimates have been developed using two vendors for hobby enthusiasts that provide equipment and marketing services on contract. Note that the vendor's contract periods vary. If the hoped-for MARR is 20% per year, determine which vendor, or neither, should be selected using an incremental ROR analysis. Solve using spreadsheet functions. Vendor Hobby-Tru (H) Knack's (K) Initial cost, $ -12,000 -24,500 M&O costs, $/year –10,000 –8,500 Revenue, $/year 15,000 17,000 Resale value, $ 500 1,000 Contract life, years 3 6 The IRR of Hobby-Tru is 4 Numeric Response 1.Edit Unavailable. 4 incorrect.%. The IRR of…arrow_forwardMargie and her sister, Jan, each own half of the shares of a closely held business. Margie is concerned about what will happen to the business if Jan dies because Jean just married a man who Margie cannot stand. Jan is also concerned because, although Margie is currently single, she has children from a prior marriage who Jan feels are spendthrifts. Neither sister is ready to quit the business and retire. Neither sister is financially able to pay a gift tax or a capital gains tax. Which one of the following is the most appropriate business transfer technique for Margie and Jan to use in this situation? A) A private annuity agreement between the two sisters B) A cross-purchase buy-sell agreement between the two sisters C) An installment sale contract between the two sisters D) A preferred stock recapitalization of the businessarrow_forwardDawn is a director of the Manello Corporation. Bert, a friend of Dawn's and an inventor, creates a new product. Bert wants Manello to handle the production and marketing of this new product, so Bert discusses his new invention with Dawn. Dawn thinks the new invention will be a huge success, but in order to maximize her personal income, Dawn suggests to Bert that she handle the manufacturing and marketing, leaving Manello out of it completely. Bert agrees. Discuss the propriety of Dawn's actions in this situation. Would the outcome be any different if Dawn were merely a shareholder owning 4 percent of Manello? Please solve and analyze this case. use facts, issue, analysis conclusion. What would be the likely outcome in court.?arrow_forward
- Sharon runs a lawn mowing business (which is GST registered) and she decides to employ her son Keith in the business. Sharon pays Keith wages of $100,000 per annum – whereas if she had hired someone else to do the work she would have paid the person only $55,000. Sharon thinks this ‘extra’ amount to Keith is okay because it is paid due to ‘natural love and affection’ and it helps Keith with paying his expenses (such as attending university). Keith is 17 years of age. Discuss the tax treatment of these payments to Keith when the business is conducted as: general partnership (with Sharon and another person Melanie as partners) corporation (with Sharon as sole shareholder) trust (with a corporation set up to act as Trustee. Sharon is the sole shareholder of the corporate trustee, and both Sharon and Keith are potential beneficiaries).arrow_forwardWHAT HAPPENS IF A PARTNER BECOMES INSOLVENT? In 2010, three dentists-Ben Rogers, Judy Wilkinson, and Henry Walker-formed a partnership to open a practice in Toledo, Ohio. The partnership's primary purpose was to reduce expenses by sharing building and equipment costs, supplies, and the services of a clerical staff. Each contributed $70,000 in cash and, with the help of a bank loan, constructed a building and acquired furniture, fixtures, and equipment. Because the partners maintained their own separate clients, annual net income has been allocated as follows: Each partner receives the specific amount of revenues that he or she generated during the period less one-third of all expenses. From the beginning, the partners did not anticipate expansion of the practice; consequently, they could withdraw cash each year up to 90 percent of their share of income for the period. The partnership had been profitable for a number of years. Over the years, Rogers has used much of his income to…arrow_forwardMarco decides to take $2,000 from the partnership for the repair and record it as an expense of the partnership. He believes that this is appropriate since he needs his car to get to work every day. Is Marco behaving ethically? Why or why not? Who is affected by Marco’s decision? What other alternatives might Marco consider?arrow_forward
- WHAT HAPPENS IF A PARTNER BECOMES INSOLVENT? In 2010, three dentists-Ben Rogers, Judy Wilkinson, and Henry Walker-formed a partnership to open a practice in Toledo, Ohio. The partnership's primary purpose was to reduce expenses by sharing building and equipment costs, supplies, and the services of a clerical staff. Each contributed $70,000 in cash and, with the help of a bank loan, constructed a building and acquired furniture, fixtures, and equipment. Because the partners maintained their own separate clients, annual net income has been allocated as follows: Each partner receives the specific amount of revenues that he or she generated during the period less one-third of all expenses. From the beginning, the partners did not anticipate expansion of the practice; consequently, they could withdraw cash each year up to 90 percent of their share of income for the period. The partnership had been profitable for a number of years. Over the years, Rogers has used much of his income to…arrow_forwardKaren has been moonlighting as a life coach. This year she made over $65,000 and would like to not realize some of those earnings, maybe in a retirement account. However, she already contributes $6,000 to her qualified retirement plan at her regular employer. What can she do? A : She can contribute some of the $65,000 in a Keogh plan, if she stops participating in her employer’s plan. B : She can contribute some of the $65,000 in an employee stock ownership plan. C : She can contribute some of the $65,000 in a Keogh plan. D : She cannot do anything because she has a qualified retirement plan available at her employer.arrow_forwardAfter graduating from college, Shelley Williams held several different jobs but found that she did not enjoy working for other people. Finally, she and Yvonne Hargrove, her college roommate, decided to start a business of their own. They rented a small building and opened a florist shop selling cut flowers such as roses and chrysanthemums that they bought from a local greenhouse. Williams and Hargrove agreed orally to share profits and losses equally, although they also decided to take no money from the operation for at least four months. No other arrangements were made, but the business did reasonably well, and after the first four months had passed, each began to draw out $500 in cash every week. At year-end, they took their financial records to a local accountant so that they could get their income tax returns completed. He informed them that they had been operating as a partnership and that they should draw up formal articles of partnership agreement or consider incorporation or…arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
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