tax quiz 5 11

9. Angela and Thomas are planning to start a new business. Thomas will invest cash in the business but not be involved in day-to-day operations. Angela plans to work full-time overseeing business operations. The two currently project that the business will generate $200,000 of annual taxable income before consideration of any payments to Angela for her services. Both agree that Angela's services are worth $100,000 Angela and Thomas plan to form a passthrough entity but are unsure whether to choose a partnership or an S corporation. In either case, they will be equal owners of the entity. Given their other sources of income, both Thomas and Angela have a 37 percent marginal tax rate on ordinary income. (Ignore any payroll or self employment tax consequences.) a. If the business is operated as a partnership, calculate ordinary income allocated to each owner, and explain the treatment by the partnership and by Angela of her $100,000 payment for services. b. If the business is operated as…

Adam Fleeman, a skilled carpenter, started a home improvement business with Tom Collins, a master plumber. Adam and Tom are concerned about the payroll taxes they will have to pay. Assume they form an S corporation and each earns a salary of $70,000 from the corporation; in addition, they expect their share of business profits to be $90,000 each. How much Social Security tax and Medicare tax (or self-employment tax) will Adam, Tom, and their corporation have to pay on their salary and profits? (Assume Adam and Tom are paying themselves reasonable salaries.)

Adam Fleeman, a skilled carpenter, started a home improvement business with Tom Collins, a master plumber. Adam and Tom are concerned about the payroll taxes they will have to pay. Assume they form an S corporation and each earns a salary of $106,000 from the corporation; in addition, they expect their share of business profits to be $88,500 each. How much Social Security tax and Medicare tax (or self-employment tax) will Adam, Tom, and their corporation have to pay on their salary and profits? (Assume Adam and Tom are paying themselves reasonable salaries.) Adam Tom S corporation FICA Tax

The Johnsons have accumulated a nest egg of $50,000 that they intend to use as a down payment toward the purchase of a new house. Because their present gross income has placed them in a relatively high tax bracket, they have decided to invest a minimum of $2600/month in monthly payments (to take advantage of the tax deduction) toward the purchase of their house. However, because of other financial obligations, their monthly payments should not exceed $3200. If local mortgage rates are 5.5%/year compounded monthly for a conventional 30-year mortgage, what is the price range of houses that they should consider? (Round your answers to the nearest cent.) least expensive $ most expensive $

Orie and Jane, husband and wife, operate a sole proprietorship. They expect their taxable income next year to be $450,000, of which $250,000 is attributed to the sole proprietorship. Orie and Jane are contemplating incorporating their sole proprietorship. (Use the tax rate schedule.) a) Using the married-joint tax brackets and corporate tax rate, find out how much current tax this strategy could save Orie and Jane. b) How much income should be left in the corporation?

The Johnsons have accumulated a nest egg of $50,000 that they intend to use as a down payment toward the purchase of a new house. Because their present gross income has placed them in a relatively high tax bracket, they have decided to invest a minimum of $2200/month in monthly payments (to take advantage of the tax deduction) toward the purchase of their house. However, because of other financial obligations, their monthly payments should not exceed $2500. If the Johnsons decide to secure a 15-year mortgage, what is the price range of houses that they should consider when the local mortgage rate for this type of loan is 5%/year compounded monthly? (Round your answers to the nearest cent.) least expensive     $ most expensive     $

Liam has always been a photo enthusiast. In 2021, a local gallery owner saw some of his photographs and offered to set up an exhibit for him. The special, one-time, weekend exhibit was a huge success, and patrons of the gallery ended up purchasing many of Liam's photographs. Even though the gallery owner retained a percentage of the profits, Liam still earned $10,000 from selling his work. How should Liam report this income on his tax return? His only

The Johnsons have accumulated a nest egg of $25,000 that they intend to use as a down payment toward the purchase of a new house. Because their present gross income has placed them in a relatively high tax bracket, they have decided to invest a minimum of $1,000/month in monthly payments (to take advantage of their tax deductions) toward the purchase of their house. However, because of other financial obligations, their monthly payments should not exceed $1,800. If local mortgage rates are 9.5%/year compounded monthly for a conventional 40-year mortgage, what is the price range of houses that they should consider? ​ If the Johnsons decide to secure a 20-year mortgage instead of a 40-year mortgage, what is the price range of houses they should consider when the local mortgage rate for this type of loan is 9%?