1. Lawrence and Ligia, ages 29 and 28, are married and file a joint return. In addition to having TWO dependent children (Lindsey and Leonard), Lawrence and Ligia have adjusted gross income (“AGI”) of $100,000 and itemized deductions of $20,000. What is their taxable income for 2012?
2. In 2012, Donald, age 16, has $200 of interest from a certificate of deposit and $2,700 from performing landscaping services. Assume Donald is claimed by his parents as a dependent. What is Donald’s standard deduction for 2012?
3. What is Caroline’s taxable income for 2012? Assume she is single and claimed TWO dependent children, Heidi and Nhi. Assume further that Caroline’s AGI is $60,000 and that her itemized deductions are $15,000.
What is Tara’s Taxable Income for 2012? Assume she is single and has no dependents. Assume further that Tara’s AGI is $125,000 and that her itemized deductions are $3,000.
5. A few years ago Majid and Marjorie formed a partnership called “M&M.” Which of the following is TRUE regarding the U.S. income taxation of Majid, Marjorie and M&M?
The M&M entity must pay income taxes
The M&M entity is not required to file an informational tax return
Majid and Marjorie must pay taxes on their respective shares of M&M’s income (even if M&M does not distribute its earnings during the year)
None of the above
8. On January 1, 2012, Kerly signed a SIX year lease to rent office space from Nehemiah. The lease commenced immediately on January 1, 2012. During 2012, Kerly will pay Nehemiah, $36,000 for the first year’s rent, $3,000 for the last month’s rent, and $3,000 as a security deposit. Kerly and Nehemiah agree that the security deposit will NOT be returned by Nehemiah at the end of the lease. How much gross income should Nehemiah report for 2012 as a result of these items?
What is Kristopher’s taxable income for 2012? Assume Kristopher is single and has no dependents. Assume further that Kristopher’s 2012 AGI is $50,000 and that he had itemized deductions of $2,000.
10. Brian, a single taxpayer, will have 2012 wages of $70,000. What is Brian’s AGI if he has the following (and only the following) additional items in 2012?
Itemized deductions of $12,000
Exemption amount of $3,800
Alimony of $12,000 paid by Brian (to his former spouse, Bedita)
Business income of $6,000 from Brian’s sole proprietorship
Ignore any deduction that may relate to self-employment taxes.
11. Assume the same facts as in the previous question (again, ignore any deduction that may relate to self-employment taxes). Brian’s Taxable Income for 2012 is:
12. Descartes and John are married taxpayers who file a joint return. In 2009, they had AGI of $600,000 and their preliminary itemized deductions totaled $40,000. In 2011, they also had AGI of $600,000 and preliminary itemized deductions of $40,000. Which of the following is TRUE?
When comparing their 2009 and 2011 returns, they were able to actually deduct more itemized deductions on their 2011 return
When comparing their 2009 and 2011 returns, they were able to actually deduct more itemized deductions on their 2009 return
When comparing their 2009 and 2011 returns, they were able to actually deduct the same amount of itemized deductions on each return
They were not able to actually deduct any itemized deductions on either their 2009 return or their 2011 return
15. In early 2012, Theresa received a gift of a home valued at $500,000 (from Theresa’s mother, Leslie). Leslie also gave Theresa a $10,000 cash gift. During 2012, Theresa rented the home to Patricia. As a result of the lease with Patricia, Theresa will earn net rental income of $20,000 (for 2012). What amount of income should Theresa’s 2012 tax return include from these transactions?
16. In 2012, Sheree, a calendar-year taxpayer, purchased business equipment (5-year property) for $900,000. The property was placed in service during 2012 (and is being used exclusively in Sheree’s extremely profitable business). No other personal property is purchased by Sheree in 2012. What is the most that Sheree may deduct in 2012 under Section 179 of the Code (ignore any potential deductions resulting from bonus deprecation or MACRS)?
17. Assume the same facts as in the previous question. However, for this question, assume that Sheree purchased the business equipment for $300,000 (instead of $900,000). What is the most that may be deducted in 2012 under Section 179 of the Code (ignore any potential deductions resulting from bonus deprecation or MACRS)?
19. Cody has AGI of $100,000 in 2012. During 2012, Cody also had an uninsured personal casualty loss of $15,000 (after the $100 reduction). The personal casualty loss related to an accident that Cody had with Chervaughn. Cody carried no collision insurance and Chervaughn was also an uninsured motorist. Assume Cody itemizes deductions in 2012. What is the casualty loss amount that Cody may actually deduct on his return?
20. Refer to the facts in the previous question. However, for purposes of this question assume that Cody takes the standard deduction in 2012. What is the casualty loss amount that Cody may actually deduct on his return?
22. TXX5761 Inc. paid all of the premiums for a $400,000 group-term life insurance policy on its 66-year-old President, Deenice. Assume that pursuant to the applicable table, the cost per $1,000 of protection for a 1-month period is $1.27 (for a person aged 65 to 69). What amount relating to the policy (if any) must be included in Deenice’s Gross Income for the year (assume Deenice was covered for all twelve months)?
25. In March 2012, Rion, a calendar-year taxpayer, purchased new 7-year property for $500,000. The property was immediately placed into service (and is being used exclusively in Rion’s extremely profitable business). No other personal property will be purchased by Rion in 2012. Rion wants to take the largest possible tax deduction in 2012 relating to the equipment. Compute the largest tax deduction possible in 2012 for the equipment (consider the Section 179 election, Bonus Depreciation, and MACRS, if applicable):
26. During 2012, 7-year MACRS property was placed in service by Ayaris, a calendar-year taxpayer. Assume that Ayaris does NOT make a Section 179 election or take any bonus depreciation. The property will most likely be depreciated over:
Eight calendar years
Seven calendar years
Three and one-half calendar years
One calendar year
28. Andreina contributed some inventory from her sole proprietorship to a public charity for its use. On the date of the contribution, Andreina’s basis in the inventory was $10,000 and the fair market value was $21,000. What is the amount of charitable contribution allowed (before considering any potential percentage limitation)?
31. What was Tomoe’s Taxable Income for 2012? Assume Tomoe is single and has TWO dependent children, Fritznel and Micheala. Assume further that Tomoe’s 2012 AGI is $75,000 and that Tomoe had itemized deductions of $13,000.
32. What was Leslie’s 2012 Net Operating Loss amount assuming that she had the following items listed on her income tax return?
Interest income on personal investments
Less: Business Expenses
Less: Personal exemption
Less: Nonbusiness deductions
Loss shown on return
36. Heidi’s business incurred a casualty loss in 2012. Immediately before the casualty, her business truck had an adjusted basis of $30,000 and a fair market value of $20,000. Immediately after the casualty, the truck had a fair market value of $5,000. Because of the truck damage, Heidi’s insurance company provided $5,000 as a reimbursement in 2012. What was Heidi’s 2012 casualty loss deduction?
Unknown (because we must know Heidi’s AGI)
38. Assume the facts stated in the prior question. Assume further that Lawrence has no other capital gains or losses in 2012 (or any prior years). What is the maximum amount (related to the bad debt) that Lawrence can deduct in 2012?
39. Assume the facts stated in the prior two questions. Assume further that for 2012 Lawrence will offset his wages (with any deduction related to the debt) to the maximum extent permitted by law. What is the amount of Lawrence’s capital loss carryover to 2013?
41. Ligia’s boss gave her two tickets to the Pink concert because she met her sales quota. At the time Ligia received the two tickets, they had a face value of $100 each and were selling on eBay for $200 each. On the date of the concert, the tickets were selling for $350 each. Ligia and her son attended the concert. How much gross income should Ligia report as a result of the tickets?
45. Chervaughn Corporation acquired new office furniture on July 13, 2012, for $70,000. Chervaughn did not elect immediate expensing under Section 179. Chervaughn elects not to take the additional first-year depreciation. Determine Chervaughn’s cost recovery for 2012.
46. On August 5, 2012, Descartes purchased a new office building for $1 million. On October 3, 2012, she began to rent out office space in the building. What is Descartes’s cost recovery for 2012?
47. Assume the same facts as in the previous problem. Assume further that Descartes sells the office building on July 12, 2016. What is Descartes’s cost recovery for 2016?
BACKGROUND INFORMATION FOR QUESTIONS 49-50
Nhi and Nehemiah recently formed a corporation named 2N, Inc. (or “2N”). On December 31, 2011, 2N issued 800,000 shares of common stock to Nhi and 800,000 shares of common stock to Nehemiah. Nhi and Nehemiah each paid $0.01 per share for their stock ($0.01 equaled the per share fair market value on December 31, 2011). Their stock is subject to a 4-year “repurchase option” (at cost) in favor of 2N. Each 2N repurchase option will “lapse” over time so that on December 31 (of 2012, 2013, 2014 and 2015), 200,000 shares will be released from the repurchase option. For example, if Nhi quits 2N before December 31, 2015, 2N can repurchase Nhi’s “unvested shares” for $0.01 per share (no matter what the fair market value is on that date).
Assume that Nhi DID file a timely “83(b) election.” On December 31, 2012, Nhi is still working at 2N and thus 200,000 of Nhi’s 800,000 shares are “released” from the 2N repurchase option (i.e., 200,000 of Nhi’s shares “vest” on December 31, 2012). On that same day, the fair market value of the 2N stock was $1.01 per share. What 2012 income, if any, must Nhi report as a result of these events?
Assume that Nehemiah DID NOT file a timely “83(b) election.” On December 31, 2012, Nehemiah is also still working at 2N and thus 200,000 of Nehemiah’s 800,000 shares are also “released” from the 2N repurchase option (i.e., 200,000 of Nehemiah’s shares “vest” on December 31, 2012). On that same day, the fair market value of the 2N stock was $1.01 per share. What 2012 income, if any, must Nehemiah report as a result of these events?