Question 1

Ray is starting a new business and trying to decide between a C corporation,S corporation and partnership.Which of the following statements regarding his decision is correct?

Accepted Answer

A partner in a partnership is the only choice that will allow the business income to pass through to the owners and be taxed on their individual tax returns (rather than the business being taxed as a separate entity). This can be beneficial for tax purposes and can also reduce the amount of paperwork and compliance requirements. Both C corporations and S corporations are separate tax entities that are subject to double taxation, meaning that the corporation is first taxed on its income, and then the shareholders or owners are taxed on any dividends or distributions received. Therefore, a partnership would be the best choice for Ray.

Question 2

A corporation has revenue of $350,000 and deductible business expenses of $240,000.What is the federal income tax,before credits?

Accepted Answer

C)Taxable income is $110,000 ($350,000 - $240,000).The tax liability is $22,250 plus $3,900 [.39 × 10,000] = $26,150.

Question 3

A building used in a business is sold after five years of use for a gain.The gain will be treated as a long-term capital gain.

Accepted Answer

The answer of A building used in a business is...

Question 4

Paige is starting Paige's Poodle Parlor and is considering alternative organizational forms.She anticipates the business will earn $100,000 from operating before compensating her for her services and before charitable contributions.Page,who is single,has $6,000 of income from other sources and other itemized deductions of $12,000.Her compensation for services will be $50,000.Charitable contributions to be made by the business are expected to be $5,000.Other distributions (dividends)to her from the business are expected to be $14,000.
Required: Compare her current income tax assuming she operates the business as a proprietorship,an S corporation,and a C corporation.Ignore payroll and other taxes.

Accepted Answer

The answer of Paige is starting Paige's Poodle Parlor and...

Question 5

Maxine,who is 76 years old and single,is appropriately claimed as a dependent on her daughter Beth's tax return.During 2016 she received $500 interest on a savings account.She had a part time job that earned $3,000.Her total itemized deductions were $1,300.
Required: Compute Maxine's taxable income for 2015.Show all calculations.

Accepted Answer

The answer of Maxine,who is 76 years old and single,is...

Question 6

Silver Inc.is an S corporation.This year it earned $50,000 of taxable income and paid a $10,000 distribution to Daisy,its sole shareholder.Daisy has a marginal tax rate of 25%.Due to the corporation's results and the distribution paid,the IRS will receive total taxes of

Accepted Answer

As an S corporation, Silver Inc. does not pay federal income tax. Instead, the corporation's income and losses flow through to the individual shareholders, who report it on their personal tax returns. In this case, Silver Inc. earned $50,000 of taxable income, which is taxable to Daisy as the sole shareholder. Since Daisy has a marginal tax rate of 25%, she will owe $12,500 in taxes on her share of Silver Inc.'s income. The $10,000 distribution does not affect the total taxes owed, since it is already included in the taxable income. Therefore, the total taxes the IRS will receive is $12,500.

Question 7

Artco Inc.is a C corporation.This year it earned $50,000 of taxable income and paid a $10,000 distribution (dividend)to Lily,its sole shareholder.Lily has a marginal tax rate of 25%.Due to the corporation's results and the distribution paid,the IRS will receive total taxes of

Accepted Answer

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Question 8

Adam attended college for much of 2016,during which time he was supported by his parents.Erin married Adam in December 2016.They live in a common law state.Adam graduated and will commence work in January 2017.Erin worked during 2016 and earned $20,000.Adam's only income was interest of $1,100.Adam's parents are in the 28% tax bracket.Thus,claiming Adam as a dependent would save them $1,134 ($4,050 × .28).
a.What is Erin and Adam's tax liability if they file a joint return?
b.What is Erin and Adam's total tax liability if they file separate returns and Adam's parents claim him as a dependent?

Accepted Answer

The answer of Adam attended college for much of 2016,during...

Question 9

Mary Ann pays the costs for her Aunt Hazel to live in a nursing home.Aunt Hazel receives Social Security benefits of $7,000 a year which are turned over to the nursing home.Mary Ann pays the remaining cost of $33,000.Hazel has no other income.Mary Ann visits Hazel twice a week and meets with doctors and nurses regarding Hazel's medical care.What tax issues should Mary Ann consider?

Accepted Answer

The answer of Mary Ann pays the costs for her...

Question 10

Gina Lewis,age 12,is claimed as a dependent on her parent's return.She is their only child.She earned $2,300 from a summer job.She also earned interest of $2,750.Her parents' marginal tax rate is 28 percent.
Required:
a.Compute the amount of Gina's tax liability for 2016.
b.Can Gina's parents take a child tax credit for her?

Accepted Answer

The answer of Gina Lewis,age 12,is claimed as a dependent...

Question 11

If an individual with a marginal tax rate of 15% has a long-term capital gain,it is taxed at

Accepted Answer

If an individual with a marginal tax rate of 15% has a long-term capital gain, it is taxed at 0%. This is because the long-term capital gains tax rates for taxpayers in the 10% and 15% tax brackets are 0%. However, if the individual's marginal tax rate was higher, the long-term capital gain would be taxed at a rate of 15% or 20% depending on their income level.

Question 12

What options are available for reporting and paying tax on the unearned income of a child under age 24?

Accepted Answer

The answer of What options are available for reporting and...

Question 13

For each of the following taxpayers indicate the applicable filing status,the number of personal and dependency exemptions available,and the number of children who qualify for the child credit.
a.Jeffrey is a widower,age 71,who receives a pension of $10,000,nontaxable social security benefits of $12,000,and interest of $2,000.He has no dependents.
b.Selma is a single,full-time college student,age 20,who earned $6,800 working part-time.She has $1,700 of interest income and received $1,000 support from her parents.
c.Olivia is married,but her husband left her three years ago and she has not seen or heard from him since.She supports herself and her six-year-old daughter.She paid all the household expenses.Her income consists of salary of $18,500 and interest of $800.
d.Ruben is a single,full-time college student,age 20,who earned $6,800 working part-time.He has $250 of interest income and received $10,000 support from his parents.
e.Cathy is divorced and received $12,000 alimony from her former husband and earned $35,000 working as an administrative assistant.She also received $2,500 of child support for her daughter who lives with her.Cathy filed the appropriate IRS form and gave up the dependency exemption to her former husband.

Accepted Answer

The answer of For each of the following taxpayers indicate...

Question 14

The only business entity that pays federal income taxes is the C corporation.

Accepted Answer

The C corporation is the only business entity that is subject to federal income taxes. Other types of business entities, such as S corporations, limited liability companies (LLCs), and partnerships, are considered pass-through entities, which means that their profits and losses flow through to the owners' personal tax returns, and the business itself does not pay federal income taxes.

Question 15

Keith,age 17,is a dependent of his parents.During 2016,he received $3,000 of dividend income.The parent's marginal rate is 28% and Keith's rate is 10%.Keith's tax is

Accepted Answer

Keith's dividend income falls in his own tax bracket and is taxed at his own rate of 10%. Therefore, his tax liability would be $300 ($3,000 x 0.10). It does not matter what his parent's marginal tax bracket is since Keith's income is not included in their tax return. So, the correct answer is choice B, $130.

Question 16

Vincent,age 12,is a dependent of his parents.During 2016,Vincent's earned income from wages is $2,600 and Vincent received $3,000 of interest income.The parent's marginal rate is 28% and Vincent's marginal rate is 10%.Vincent's tax is

Accepted Answer

Vincent's earned income from wages is less than the standard deduction for a dependent, which was $6,300 in 2016. Therefore, he doesn't owe any federal income tax on his wages.

Vincent's interest income is subject to federal income tax. His parents can choose to include it on their own tax return, but if they don't, Vincent will have to file his own tax return.

Assuming Vincent files his own tax return, his taxable interest income is $3,000 - $50 (the amount of interest income that is not taxable due to the kiddie tax).

Vincent's total taxable income is $3,000, which is less than the standard deduction for a single taxpayer ($6,300 in 2016). Therefore, Vincent's federal income tax is $0.

Note that Vincent's marginal tax rate of 10% applies only to the portion of his taxable income that falls within the 10% tax bracket. Since his taxable income is less than the 10% bracket, his actual tax rate is 0%.

Question 17

The annual tax reporting form filed with the IRS by C corporations is the Schedule C.

Accepted Answer

The annual tax reporting form filed with the IRS by C corporations is actually the Form 1120. The Schedule C is a form used by self-employed individuals to report their business income and expenses.

Question 18

A $10,000 gain earned on stock held 13 months is taxed in a more favorable manner than a $10,000 gain earned on stock held 11 months.

Accepted Answer

According to the US tax code, if you hold a stock for more than a year (13 months in this case), it qualifies for long-term capital gains tax treatment, which has lower tax rates than short-term gains tax treatment. Therefore, a $10,000 gain earned on stock held for 13 months is taxed in a more favorable manner than a $10,000 gain earned on stock held for 11 months, which would be considered short-term gains and subject to higher tax rates.

Question 19

Indicate for each of the following the most favorable filing status for the 2016 tax year.
a.Kenny died on March 2,2015.Marge,his wife,and Bart,their son,survive.Marge filed a joint return in 2015.Bart,age 18 in 2016,is a part-time college student and continues to live at home with his mother.He works part-time,earning $6,200.What is Marge's filing status in 2016?
b.Alan Spaulding is single and provides over 50% support of his niece Alicia who lives with him all year long.Alan maintains the household and claims Alicia as a dependent.Alicia makes $3,600 at a part-time job.She is a full-time student,age 18.What is Alan's filing status?
c.Lily,who was divorced on July 27,2015,provides 100% of the support for her parents who live in a nursing home in Kansas and have no income.What is Lily's filing status?
d.Holly was abandoned by her husband Fletcher in September of the current year.She has not seen or communicated with him since then.What is Holly's filing status?
e.Rick,whose wife died in December 2013,filed a joint tax return for 2013.He did not remarry,but has continued to maintain his home in which his two dependent children live.What is Rick's filing status for 2016?

Accepted Answer

The answer of Indicate for each of the following the...

Question 20

The following information for 2015 relates to Emma Grace,a single taxpayer,age 18:
  a.Compute Emma Grace's taxable income assuming she is self-supporting.
b.Compute Emma Grace's taxable income assuming she is a dependent of her parents.

Accepted Answer

The answer of The following information for 2015 relates to...

Quiz 2: Determination of Tax