CengageNOWv2, 1 term Printed Access Card for Hoffman/Young/Raabe/Maloney/Nellen's South-Western Federal Taxation 2018: Individual Income Taxes, 41st
41st Edition
ISBN: 9781337389518
Author: William H. Hoffman, James C. Young, William A. Raabe, David M. Maloney, Annette Nellen
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 54CP
To determine
Determine R’s taxable income and regular tax liability and Alternative Minimum Taxable Income (AMTI). Also, find whether he has an AMT liability.
Expert Solution & Answer
Explanation of Solution
Determine R’s taxable income and regular tax liability.
| Calculation of taxable income and regular tax liability | ||
| Description | Amount | |
| Salary | $650,000 | |
| Long-term | $1,100 | Refer working note 1 |
| Interest income | $23,000 | Refer working note 2 |
| Lottery winnings | $60,000 | |
| Life insurance proceeds | $0 | Refer working note 3 |
| Adjusted Gross income before rental loss | $734,100 | |
| Real estate rental loss | $0 | Refer working note 4 |
| Adjusted Gross income | $734,100 | |
| Less: Itemized deductions: | $(30,100) | Refer working note 5 |
| Taxable income | $704,000 | |
| Regular income tax liability | $225,983 | Refer working note 6 |
Compute R’s AMT (alternative minimum tax).
| Calculation of AMT | ||
| Particulars | Amount | |
| Taxable income | $704,000 | |
| Add: Adjustments and preferences | ||
| Incentive stock option adjustment | $6,000 | Refer working note 7 |
| State and local income taxes | $8,900 | |
| Interest on private activity bonds | $30,000 | |
| Alternative minimum taxable income (AMTI) | $748,900 | |
| Less: Exemption | $(8,075) | Refer working note 8 |
| AMT base | $740,825 | |
| TMT | $203,521 | Refer working note 9 |
| Less: Regular Income tax liability | $225,983 | Refer working note 6 |
| AMT | $0 | |
Calculate R’s tax owned or (refund due).
| Calculation of total tax liability | |
| Particulars | Amount |
| Regular income tax liability | $225,983 |
| Alternative minimum tax | $0 |
| Total tax liability | $225,983 |
| Less: Estimated tax payments | (210,000) |
| Tax owned | $15,983 |
Working Note (1):
Long-term capital gain of $13,100 is offset by long-term capital loss of $12,000. Hence, net long-term capital gain is $1,100
Working Note (2):
$30,000 of interest on private activity bonds and $40,000 of other tax-exempt interest is excluded from gross income. $23,000 of interest income on growth stock is included in gross income.
Working Note (3):
The life insurance proceeds of $800,000 are excluded from gross income.
Working Note (4):
Calculate the amount of loss on rental property.
R is an active participant. Hence, he may deduct a loss of $35,000
Working Note (5):
Calculate itemized deductions.
| Calculation of itemized deduction | |
| State and local income taxes | $8,900 |
| Gambling losses | $8,000 |
| Charitable contributions | $13,200 |
| Itemized deductions | $30,100 |
Note: Consumer interest of $4,200 is not deductible. As the assistant is not the dependent of R, Medical expense of $15,000 is not deductible.
Working Note (6):
Calculate regular income tax liability.
Working Note (7):
Calculate the amount of incentive stock option adjustment.
Working Note (8):
Determine the AMT exemption (files as single taxpayer).
Working Note (9):
Calculate the amount of tentative minimum tax.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1117. Devon did not engage in any virtual currency transactions during the year, and he does not want $3 to go to the Presidential Election Campaign Fund.
Devon's wife, Ariane, passed away in 2015. Devon's son, Tom, who is age 18, resides with Devon. Tom's Social Security number is 123-45-6788.
Devon owns a sole proprietorship for which he uses the accrual method of accounting and maintains no inventory; the business operates as Devon’s Copy Shop, 422 E. Main Street, Albuquerque, NM 87131, IRS business activity code: 453990. His revenues and expenses for 2019 are as follows:
Sales revenue
$740,000
Cost of goods sold (based on purchases for the year)
405,000
Salary expense
88,000
Rent expense
30,000
Utilities
8,000
Telephone
6,500
Advertising
4,000
Bad debts
5,000
Depreciation*
21,000
Health insurance**
26,000
Accounting and legal fees
7,000…
Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1117. Devon does not want $3 to go to the Presi-dential Election Campaign Fund.
Devon’s wife, Ariane, passed away in 2014. Devon’s son, Tom, who is age 18, resides with Devon. Tom’s Social Security number is 123-45-6788.
Devon owns a sole proprietorship for which he uses the accrual method of account-ing and maintains no inventory; the business operates as Devon’s Copy Shop, 422 E. Main Street, Albuquerque, NM 87131, IRS business activity code: 453990. His revenues and expenses for 2018 are as follows.
Sales revenue $740,000
Cost of goods sold (based on purchases for the year) 405,000
Salary expense 88,000
Rent expense 30,000
Utilities 8,000
Telephone 6,500
Advertising 4,000
Bad debts 5,000
Depreciation* 21,000
Health insurance** 26,000
Accounting and legal fees 7,000
Supplies 1,000
* New office equipment ($21,000); Devon…
Jane Smith, age 40, is single and has no dependents. She is employed as a legalsecretary by Legal Services, Inc. She owns and operates Typing Services located nearthe campus of Florida Atlantic University at 1986 Campus Drive, Boca Raton, FL 33434.Jane is a material participant in the business. She is a cash basis taxpayer. Jane lives at2020 Oakcrest Road, Boca Raton, FL 33431-Jane’s Social Security number is 123-45-6781. Jane indicates that she wants to designate $3 to the Presidential ElectionCampaign Fund. Jane had health insurance for all months of 2018. During 2018, Janehad the following income and expense items:a. $100,000 salary from Legal Services, Inc.b. $20,000 gross receipts from her typing services business.c. $700 interest income from Third National Bank.d. $1,000 Christmas bonus from Legal Services, Inc.e. $60,000 life insurance proceeds on the death of her sister.f. $5,000 check given to her by her wealthy aunt.g. $100 won in a bingo game.h. Expenses connected with the…
Chapter 12 Solutions
CengageNOWv2, 1 term Printed Access Card for Hoffman/Young/Raabe/Maloney/Nellen's South-Western Federal Taxation 2018: Individual Income Taxes, 41st
Ch. 12 - Kelly was promoted and received a substantial...Ch. 12 - Prob. 2DQCh. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - Can any nonrefundable credits, other than the...Ch. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - Prob. 10DQ
Ch. 12 - Prob. 11DQCh. 12 - Prob. 12DQCh. 12 - Prob. 13DQCh. 12 - Prob. 14DQCh. 12 - Prob. 15DQCh. 12 - Prob. 16DQCh. 12 - Prob. 17DQCh. 12 - During the year, Rachel earned 18,000 of interest...Ch. 12 - Prob. 19CECh. 12 - Prob. 20CECh. 12 - Prob. 21CECh. 12 - Prob. 22CECh. 12 - Prob. 23CECh. 12 - Prob. 24CECh. 12 - Prob. 25CECh. 12 - Prob. 26PCh. 12 - Prob. 27PCh. 12 - Prob. 28PCh. 12 - Prob. 29PCh. 12 - Lisa records nonrefundable Federal income tax...Ch. 12 - Prob. 31PCh. 12 - Prob. 32PCh. 12 - Prob. 33PCh. 12 - Prob. 34PCh. 12 - Prob. 35PCh. 12 - Prob. 36PCh. 12 - Prob. 37PCh. 12 - Prob. 38PCh. 12 - Prob. 39PCh. 12 - Prob. 40PCh. 12 - Prob. 41PCh. 12 - Prob. 42PCh. 12 - Prob. 43PCh. 12 - Prob. 44PCh. 12 - Prob. 45PCh. 12 - Prob. 46PCh. 12 - Prob. 47PCh. 12 - Prob. 48PCh. 12 - Prob. 49PCh. 12 - Prob. 50PCh. 12 - Prob. 51PCh. 12 - Prob. 52PCh. 12 - Prob. 53PCh. 12 - Prob. 54CPCh. 12 - Prob. 55CPCh. 12 - Prob. 2RPCh. 12 - Prob. 3RPCh. 12 - Prob. 1CPACh. 12 - Prob. 2CPACh. 12 - Carol reports taxable income of 48,000. Included...Ch. 12 - Prob. 4CPA
Knowledge Booster
Similar questions
- Robert A. Kliesh, age 41, is single and has no dependents. Roberts Social Security number is 111-11-1115. His address is 201 Front Street, Missoula, MT 59812. He does not contribute to the Presidential Election Campaign fund through the Form 1040. Robert works as a financial analyst and is very well regarded in his field. This year his salary totaled 650,000. His professional success has allowed him to purchase investments in real estate and corporate stocks and bonds. He also spends time volunteering with various organizations that help people develop financial literacy skills. Examination of Roberts financial records provides the following information for 2018. a. On January 16, Robert sold 1,000 shares of stock for a loss of 12,000. The stock was acquired 14 months ago for 17,000 and sold for 5,000. On February 15, he sold 400 shares of stock for a gain of 13,100. That stock was acquired in 2010 for 6,000 and sold for 19,100. b. He received 30,000 of interest on private activity bonds that he purchased in 2015. He also received 40,000 of interest on tax-exempt bonds that are not private activity bonds. c. Robert received gross rent income of 190,000 from an apartment complex he owns. He qualifies as an active participant in the activity. The property is at 50 Big Sky Resort Road, Big Sky, Montana, 59716. d. Expenses related to the apartment complex, acquired in 2009, were 225,000. e. Roberts taxable interest income, all from corporate bonds, totaled 23,000. Because he invests only in growth stocks, he receives no dividend income. f. He won 60,000 in the Montana lottery. g. Robert was the beneficiary of an 800,000 life insurance policy on the life of his uncle Jake. He received the proceeds in October. h. In February, Robert exercised an incentive stock option that was granted by his employer in 2015. The strike price of the option was 10 per share. On the date of exercise, the fair market value of the stock was 25 per share. Robert purchased 400 shares with the option; as of the end of the year, he still owns the stock (current FMV 20 per share). i. Robert incurred the following potential itemized deductions. 5,200 fair market value of stock contributed to the Red Cross (3,000 stock basis). He had owned the stock for two years. Robert also made cash contributions of 8,000 to qualified organizations during the year. 4,200 interest on consumer purchases. 8,900 state and local income tax. 15,000 of medical expenses that he paid on behalf of his administrative assistant, who unexpectedly took ill. 8,000 paid for lottery tickets associated with playing the state lottery. 750 contribution to the campaign of the Democratic candidate for governor of Montana. Because Robert lived in Montana, he paid no state-income tax. Robert made estimated Federal tax payments of 210,000, and he was covered by health insurance for the entire tax year. Use Forms 1040 and 6251 and Schedules A, B, D, and E to compute the tax liability (including AMT) for Robert A. Kliesh for 2018. Omit Forms 8283, 8582, and 8949. Suggested software: ProConnect Tax Online.arrow_forwardDevon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1117. Devon does not want 3 to go to the Presidential Election Campaign Fund. Devons wife, Ariane, passed away in 2014. Devons son, Tom, who is age 18, resides with Devon. Toms Social Security number is 123-45-6788. Devon owns a sole proprietorship for which he uses the accrual method of accounting and maintains no inventory; the business operates as Devons Copy Shop, 422 E. Main Street, Albuquerque, NM 87131, IRS business activity code: 453990. His revenues and expenses for 2018 are as follows. Other income received by Devon includes the following. During the year, Devon and his sole proprietorship were involved in the following property transactions. Stock transactions were reported to Devon on Form 1099B; basis was not reported to the IRS. a. Sold Blue, Inc. stock for 45,000 on March 12, 2018. He had purchased the stock on September 5, 2015, for 50,000. b. Received an inheritance of 300,000 from his uncle, Henry. Devon used 200,000 to purchase Green, Inc. stock on May 15, 2018, and invested 100,000 in Gold, Inc. stock on May 30, 2018. c. Received Orange, Inc. stock worth 9,500 as a gift from his aunt, Jane, on June 17, 2018. Her adjusted basis for the stock was 5,000. No gift taxes were paid on the transfer. Jane had purchased the stock on April 1, 2012. Devon sold the stock on July 1, 2018, for 22,000. d. On July 15, 2018, Devon sold one-half of the Green, Inc. stock for 40,000. e. Devon was notified on August 1, 2018, that Yellow, Inc. stock he purchased from a colleague on September 1, 2017, for 52,500 had become worthless. Although he understood that investing in Yellow was risky, Devon did not anticipate that the corporation would declare bankruptcy. f. On August 15, 2018, Devon received a parcel of land in Phoenix worth 220,000 in exchange for a parcel of land he owned in Tucson. Because the Tucson parcel was worth 245,000, he also received 25,000 cash. Devons adjusted basis for the Tucson parcel was 210,000. He originally purchased it on September 18, 2015. g. On December 1, 2018, Devon sold the condominium in which he had been living for the past 20 years (1844 Lighthouse Lane, Albuquerque, NM 87131) and moved into a rented townhouse. The sales price was 480,000, selling expenses were 28,500, and repair expenses related to the sale were 9,400. Devon purchased the condominium for 180,000. Devons potential itemized deductions, exclusive of the aforementioned information, are as follows. During the year, Devon makes estimated Federal income tax payments of 35,000. Compute Devons lowest net tax payable or refund due for 2018 assuming that he makes any available elections that will reduce the tax. If you use tax forms for your computations, you will need Form 1040 and its Schedules 1, 4, 5, A, B, C, D, and SE and Forms 4562, 8824, and 8949. Suggested software: ProConnect Tax Online.arrow_forwardJane Smith, age 40, is single and has no dependents. She is employed as a legal secretary by Legal Services, Inc. She owns and operates Typing Services located near the campus of Florida Atlantic University at 1986 Campus Drive, Boca Raton, FL 33434. Jane is a material participant in the business. She is a cash basis taxpayer. Jane lives at 2020 Oakcrest Road, Boca Raton, FL 33431. Jane’s Social Security num-ber is 123-45-6781. Jane indicates that she wants to designate $3 to the Presidential Election Campaign Fund. Jane has never owned or used any virtual currency. During 2019, Jane had the following income and expense items: a. $100,000 salary from Legal Services, Inc. b. $20,000 gross receipts from her typing services business. c. $700 interest income from Third National Bank. d. $1,000 Christmas bonus from Legal Services, Inc. e. $60,000 life insurance proceeds on the death of her sister. f. $5,000 check given to her by her wealthy aunt. g. $100 won in a bingo game. h. Expenses…arrow_forward
- Janice Morgan, age 24, is single and has no dependents. She is a freelance writer. In January 2018, Janice opened her own office located at 2751 Waldham Road, Pleasant Hill, NM 88135. She called her business Writers Anonymous. Janice is a cash basis taxpayer.She lives at 132 Stone Avenue, Pleasant Hill, NM 88135. Her Social Security number is 123-45-6782. Janice’s parents continue to provide health insurance for her under their policy. Janice wants to contribute to the Presidential Election Campaign Fund.During 2018, Janice reported the following income and expense items connected with her business. Income from sale of articles $85,000Rent 16,500Utilities 7,900Supplies 1,800Insurance…arrow_forwardOld Alfred Road, who is well-known to drivers on the Maine Turnpike, has reached his 70th birthday and is ready to retire. Mr. Road has no formal training in finance but has saved his money and invested carefully. Mr. Road owns his home-the mortgage is paid off-and does not want to move. He is a widower, and he wants to bequeath the house and any remaining assets to his daughter. He has accumulated savings of $180,000, conservatively invested. The investments are yielding 9% interest. Mr. Road also has $12,000 in a savings account at 5% interest. He wants to keep the savings account intact for unexpected expenses or emergencies. Mr. Road's basic living expenses now average about $1,500 per month, and he plans to spend $500 per month on travel and hobbies. To maintain this planned standard of living, he will have to rely on his investment portfolio. The interest from the portfolio is $16,200 per year (9% of $180,000), or $1,350 per month. Mr. Road will also receive $750 per month in…arrow_forwardOld Alfred Road, who is well-known to drivers on the Maine Turnpike, has reached his 70th birthday and is ready to retire. Mr. Road has no formal training in finance but has saved his money and invested carefully. Mr. Road owns his home - the mortgage is paid off - and does not want to move. He is a widower, and he wants to bequeath the house and any remaining assets to his daughter. He has accumulated savings of $180,000. The investments are yielding 9% interest. Mr. Road also has $12,000 in a savings account at 5% interest. He wants to keep the savings account intact for unexpected expenses or emergencies. Mr. Road's basic living expenses now average about $1,500 per month, and he plans to spend $500 per month on travel and hobbies. To maintain this planned standard of living, he will have to rely on his investment portfolio. The interest from the portfolio is $16,200 per year (9% of $180,000), or $1,350 per month. Mr. Road will also receive $750 per month in Social Security payments…arrow_forward
- Bubba, 32, owns and operates a food shop in New Orleans, called Food Boys. It is a family business that sells authentic New Orleans food. Bubba wants to establish a retirement plan to save for his retirement and the retirement of his employees on a tax-deferred basis. He has recruited you to assist in making a plan selection. Bubba only wants to contribute in years that he makes a profit and does not want to incur much if anything on administrative expenses. Since the emplouyees of Ya Mama's are all family members, Bubba is happy to contribute on behalf of the employees when the restaurant is doing well. 1. Based on Bubba’s objectives, what type of retirement plan is most suited for his needs? 2. Why might you recommend that Bubba utilize a qualified profit-sharing plan with a CODA in lieu of the suggestion in question 1? (if you suggested a profit-sharing plan with a CODA for Q1, reconsider).arrow_forwardTim (49) and Deborah (50) are married and want to file together. They have two children, Jude (20) and Skyler (15), who both lived with their parents all year. They are all U.S. citizens and have valid social security numbers. Jude is single, not a student, and he has a part-time job. Skyler is single and still in high school. Neither Jude or Skyler provide more than 50% support for themselves. Tim’s wages were $31,250; Deborah’s wages were $19,000; Jude’s gross income was $5,300; Skyler’s was $0. Tim and Deborah had no foreign income and $350 of dividends. Question 4 Are Tim and Deborah eligible to claim the Child Tax Credit (CTC) and Additional Child Tax Credit (if the CTC is limited), or the Other Dependent Credit for any potential dependent? Choose the best response. Tim and Deborah are eligible to claim the Child Tax Credit/Additional Child Tax Credit. Tim and Deborah are eligible to claim the Other Dependent Credit. Tim and Deborah may claim both the Child Tax Credit…arrow_forwardTim (49) and Deborah (50) are married and want to file together. They have two children, Jude (20) and Skyler (15), who both lived with their parents all year. They are all U.S. citizens and have valid social security numbers. Jude is single, not a student, and he has a part-time job. Skyler is single and still in high school. Neither Jude or Skyler provide more than 50% support for themselves. Tim’s wages were $31,250; Deborah’s wages were $19,000; Jude’s gross income was $5,300; Skyler’s was $0. Tim and Deborah had no foreign income and $350 of dividends. Question 1 What is Tim and Deborah's correct and most favorable 2020 filing status? Single. Married filing jointly. Married filing separately. Head of household. Qualifying widow(er). Question 2 What is Jude's dependency status for Tim and Deborah? Qualifying Child Dependent. Qualifying Relative Dependent. He is not a dependent of Tim and Deborah. Question 3 What is Skyler's dependency status for Tim and…arrow_forward
- Ashley Panda lives at 1310 Meadow Lane, Wayne, OH 43466, and her Social Security number is 123-45-6777. Ashley is single and has a 20-year-old son, Bill. His Social Security number is 111-11-1112. Bill lives with Ashley, and she fully supports him. Bill spent 2020 traveling in Europe and was not a college student. He had gross income of $4,655 in 2020. Bill paid $4,000 of lodging expenses that Ashley reimbursed after they were fully documented. Ashley paid the $4,000 to Bill using a check from her sole proprietorship. That amount is not included in the items listed below. Ashley had substantial health problems during 2020, and many of her expenses were not reimbursed by her health insurance. Ashley owns Panda Enterprises LLC (98-7654321), a data processing service that she reports as a sole proprietorship. Her business is located at 456 Hill Street, Wayne, OH 43466. The business activity code is 514210. Her 2020 Form 1040, Schedule C for Panda Enterprises shows revenues of $315,000,…arrow_forwardMike (49) and Viola (50) are married and want to file together. They have two children, April (20) and May (15), who both lived with their parents all year. They are all U.S. citizens and have valid social security numbers. April is single, not a student, and she has a part-time job. May is single and still in high school. Neither April nor May provide more than 50% support for themselves. Mike’s wages were $31,250; Viola’s wages were $19,000; April's gross income was $5,300; May's was $0. Mike and Viola had no foreign income and $350 of dividends. 1. Are Mike and Viola eligible to claim the Child Tax Credit (CTC) and Additional Child Tax Credit (if the CTC is limited), or the Other Dependent Credit for any potential dependent? Choose the best response. A.Mike and Viola are eligible to claim the Child Tax Credit/Additional Child Tax Credit. B.Mike and Viola are eligible to claim the Other Dependent Credit. C.Mike and Viola may claim both the Child Tax Credit and the Other…arrow_forwardNote: This problem is for the 2019 tax year. Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1117. Devon did not engage in any virtual currency transactions during the year, and he does not want $3 to go to the Presidential Election Campaign Fund. Devon's wife, Ariane, passed away in 2015. Devon's son, Tom, who is age 18, resides with Devon. Tom's Social Security number is 123-45-6788. Devon owns a sole proprietorship for which he uses the accrual method of accounting and maintains no inventory; the business operates as Devon’s Copy Shop, 422 E. Main Street, Albuquerque, NM 87131, IRS business activity code: 453990. His revenues and expenses for 2019 are as follows. Sales revenue $740,000 Cost of goods sold (based on purchases for the year) 405,000 Salary expense 88,000 Rent expense 30,000 Utilities 8,000 Telephone 6,500 Advertising 4,000 Bad debts 5,000 Depreciation* 21,000 Health insurance**…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
Individual Income Taxes
Accounting
ISBN:9780357109731
Author:Hoffman
Publisher:CENGAGE LEARNING - CONSIGNMENT