FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Related questions
Question
The 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
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 reviewing her situation, Maxine’s financial adviser suggests that she invest at least
an additional $12,000 in Teal to ensure a full loss deduction in the cur-rent year. How do
you react to his suggestion?
d. What would you suggest Maxine consider as she attempts to maximize her current-year deductible loss?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution
Trending nowThis is a popular solution!
Step by stepSolved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Callie Cooper purchased two pieces of property in 1990: Property Q cost $15,000 and Property R cost $30,000. In 2020, when Callie died, she left the property to her daughter, Christy. At that time, Property Q had appreciated in value to $80,000 while Property R had declined in value, now worth only $10,000. What is Christy’s basis in each piece of property? What are the tax consequences of the changes in value of the properties from the time of original purchase to the death of Callie?arrow_forwardMr. Young operates a photography studio as a sole proprietorship. His average annual income from the business is $100,000. Because Mr. Young does not need the entire cash flow for personal consumption, he is considering incorporating the business. He will work as a corporate employee for a $40,000 annual salary, and the corporation will accumulate its after-tax income to fund future business expansion. For purposes of this case, assume that Mr. Young's marginal income tax rate is 32 percent and ignore any employment tax consequences. a. Assuming Mr. Young's sole proprietorship does not qualify for the QBI deduction, by how much would Mr. Young's annual tax burden increase or decrease by incorporating? b. Assuming Mr. Young's sole proprietorship qualifies for the 20% QBI deduction, by how much would Mr. Young's annual tax burden increase or decrease by incorporating? Complete this question by entering your answers in the tabs below. Required A Required B Assuming Mr. Young's sole…arrow_forwardHana is in the 24% tax bracket and owns depreciable business equip-ment that she purchased several years ago for $135,000. She has taken $100,000 of depreciation on the equipment, and it is worth $55,000. Hana’s niece, Michelle, is starting a new business and is short of cash. Michelle has asked Hana to gift the equipment to her so that Michelle can use it in her business. Hana no longer needs the equipment. Identify the alternatives available to Hana if she wants to help Michelle and the tax effects of those alternatives. (Assume that all alternatives involve the business equipment in one way or another, and ignore the gift tax.)arrow_forward
- Would you sign this return if you were Tom and Teri’s Paid Tax Preparer? Why or why not? Your clients, Tom (age 48) and Teri (age 45) Trendy, have a son, Tim (age 27). Tim lives in Hawaii, where he studies the effects of various sunscreens on his ability to surf. Last year, Tim was out of money and wanted to move back home and live with Tom and Teri. To prevent this, Tom lent Tim $20,000 with the understanding that he would stay in Hawaii and not come home. Tom had Tim sign a formal note, including a stated interest rate and due date. Tom has a substantial portfolio of stocks and bonds and has generated a significant amount of capital gains in the current year. He concluded that Tim is a deadbeat and the $20,000 note is worthless. Consequently, Tom wants to his son’s bad debt on his and Teri’s current tax return and net it against his other capital gains and losses. Tom is adamant about this!arrow_forwardMr. DEE has owned a modest triplex for a number of years, and all three units have been rented during that time. CCA has been deducted from his income from this property in each year. Mr. DEE has moved into one of the three units during the current year. Because MR DEE will only be renting two of the homes, he will report lower rental revenue. He hasn't sold anything, therefore he won't be reporting any capital gains or losses this year. Is this accurate?arrow_forwardJoel is the sole shareholder of Mantee Corporation, a C corporation. Because Manatee’s sales have increased significantly over the last several years, Joes has determined that the corporation needs a new distribution warehouse. Joel has asked your advice as to whether (1) Manatee should purchase the warehouse or (2) he should purchase the warehouse and lease it to Manatee. What relevant tax issues will you discuss with Joel?arrow_forward
- Daniel is considering selling two stocks that have not fared well over recent years. A friend recently informed Daniel that one of his stocks has a special designation, which allows him to treat a loss up to $64,000 on this stock as an ordinary loss rather than the typical capital loss. Daniel figures that he has a loss of $76,800 on each stock. If Daniel's marginal tax rate is 35 percent and he has $153,600 of other capital gains (taxed at 15 percent), what is the tax savings from the special tax treatment? Lassenstiarrow_forwardNoah Yobs, who has $97,000 of AGI (solely from wages) before considering rental activities, has $87,300 of losses from a real estate rental activity in which he actively participates. He also actively participates in another real estate rental activity from which he has $48,500 of income. He has other passive activity income of $31,040. a. What amount of rental loss can Noah use to offset active or portfolio income in the current year? b. Compute Noah’s AGI on Form 1040 [pages 1 and 2; also complete Schedule 1 (Form 1040)] for the current year. Use the minus sign to indicate a loss. What amounts should go on lines 1, 6, & 7 on page 2 of FORM 1040? What amount s go on lines 17, & 22 on schedule one of FORM 1040?arrow_forwardLena is the sole shareholder and president of Gold Corporation, which is a C Corporation. She feels that she can justify paying herself a $50,000 bonus this year because of her excellent performance for the company. However, rather than a bonus, she considers having Gold pay her a $50,000 dividend. She believes this would be preferable because it will be taxed at only 15% as a “qualified dividend” instead of being taxed at her marginal income tax rate of 35% as a bonus. Assuming that Gold Corporation is in the 21% federal tax bracket, how much federal income tax could Lena save by taking the bonus?Given that Lena owns 100% of Gold Corporation you should analyze this decision from both the corporation and individual tax perspectives (an “integrated” analysis). You can ignore any state or social security tax considerations. Reminder: dividends paid by a C Corporation are nondeductible for federal income tax purposes.arrow_forward
- lois bought a house in july 2009 for $200000 and moved in immediately. in july 2012, she rented it out as she was sent overseas ny her employer. at that time, the house was valued at $350000. she sold it in july of the current tax year for $360000. Calculate Bunny’s net capital gain/(loss) for the current tax year, indicating where appropriate which element of the cost base is applicable for each outlay. Support your answer with income tax legislation where necessaryarrow_forwardMarilyn owns land that she acquired three years ago as an investment for $250,000. She sells the land two years later for $300,000. How does the "recovery of capital doctrine" apply in computing Marylyn's gain or loss from the sales transaction? What is the correlation between "adjusted basis" and the "recovery of capital doctrine? Give an example how this doctrine prevents income from being taxes more than once.arrow_forwardAnswerarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education