CONCEPTS IN FED.TAX.,2020-W/ACCESS
20th Edition
ISBN: 9780357110362
Author: Murphy
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Question
Chapter 2, Problem 65IIP
To determine
Identify the tax issue posed by the facts presented and ascertain the possible tax consequence of each issue identified.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
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
Cynthia is a successful sculptor who created a work that is now worth $400,000 and has
no tax basis. Cynthia forms a corporation and contributes the sculpture to it in exchange
for the corporation's shares. Fourteen months later, she sells all the stock for $400,000.
She wants to treat the sale of the stock as a long-term capital gain. Evaluate the propriety
of Cynthia's actions.
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 $80,000 from the corporation; in addition, they expect their share of business profits to be $60,000 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?
Chapter 2 Solutions
CONCEPTS IN FED.TAX.,2020-W/ACCESS
Ch. 2 - Prob. 1DQCh. 2 - Prob. 2DQCh. 2 - What is an arms-length transaction? What is its...Ch. 2 - Prob. 4DQCh. 2 - Prob. 5DQCh. 2 - Prob. 6DQCh. 2 - Prob. 7DQCh. 2 - Prob. 8DQCh. 2 - Prob. 9DQCh. 2 - Prob. 10DQ
Ch. 2 - Prob. 11DQCh. 2 - Prob. 12DQCh. 2 - Prob. 13DQCh. 2 - Prob. 14DQCh. 2 - Prob. 15DQCh. 2 - Prob. 16DQCh. 2 - Prob. 17DQCh. 2 - Prob. 18PCh. 2 - Prob. 19PCh. 2 - Sheila, a single taxpayer, is a retired computer...Ch. 2 - Prob. 21PCh. 2 - Prob. 22PCh. 2 - Prob. 23PCh. 2 - Prob. 24PCh. 2 - Prob. 25PCh. 2 - Prob. 26PCh. 2 - Prob. 27PCh. 2 - Prob. 28PCh. 2 - Prob. 29PCh. 2 - Prob. 30PCh. 2 - Prob. 31PCh. 2 - Prob. 32PCh. 2 - Prob. 33PCh. 2 - Prob. 34PCh. 2 - Prob. 35PCh. 2 - Prob. 36PCh. 2 - Prob. 37PCh. 2 - Prob. 38PCh. 2 - Prob. 39PCh. 2 - Prob. 40PCh. 2 - Chelsea, who is single, purchases land for...Ch. 2 - Prob. 42PCh. 2 - Prob. 43PCh. 2 - Prob. 44PCh. 2 - Prob. 45PCh. 2 - Prob. 46PCh. 2 - Prob. 47PCh. 2 - Prob. 48PCh. 2 - Prob. 49PCh. 2 - Prob. 50PCh. 2 - Prob. 51PCh. 2 - Prob. 52PCh. 2 - Prob. 53PCh. 2 - Prob. 54PCh. 2 - Prob. 55PCh. 2 - Prob. 56PCh. 2 - Prob. 57PCh. 2 - Prob. 58PCh. 2 - Prob. 59PCh. 2 - Prob. 60PCh. 2 - Determine the taxpayers adjusted basis in each of...Ch. 2 - Prob. 62PCh. 2 - Prob. 63IIPCh. 2 - Prob. 64IIPCh. 2 - Prob. 65IIPCh. 2 - Jerry and his wife, Joanie, own a successful...Ch. 2 - Prob. 67IIPCh. 2 - Prob. 68IIPCh. 2 - Prob. 69IIPCh. 2 - Prob. 70IIPCh. 2 - Prob. 71IIPCh. 2 - Prob. 79DCCh. 2 - Prob. 80DCCh. 2 - Prob. 81TPC
Knowledge Booster
Similar questions
- Jerry and his wife, Joanie, own a successful concrete company that is organized as a corporation. Jerry spends all his time running the company, whereas Joanie has a full-time job as a legal secretary. The corporation pays Joanie a salary of 45,000 a year as vice president.arrow_forwardEnergo Electronics, an incorporated business, has a highly paid electrical and computer specialist, Seng, on the payroll whose services are essential to the success of the business. The company is concerned that should Seng die or become disabled the business would suffer serious financial setbacks. In order to partially protect its interests, the company plans to purchase $500,000 worth of term insurance on Seng's life. Earning over $300,000 a year Seng's primary concern is to shelter as much of his income as possible from taxes. He has little personal need for life insurance. Suggest a solution using universal life insurance that would meet both Seng's and the company's needs. A) The company could buy a $500,000 UL policy on Seng's life with the level plus account value death benefit. The company would own the basic death benefit and Seng would own the cash value and the portion of the death benefit equal to the account value. The company would pay a premium equal to the policy NCPI…arrow_forwardAdam 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.)arrow_forward
- Scrooge is thinking of selling his money lending business. He has been the sole owner for 6 years since his partner died. He has three employees – Bob, Cindy, and Dale. He decides to sell the company to the three of them. The business is worth $120,000. Each employee puts in $40,000 to buy the company. According to the Howey Test, was a security issued? A. Yes, because there was an equal investment of money B. No, because he did not register with the SEC C. Yes, because there was a common enterprise D. No, because there was a complete sale of the businessarrow_forwardTom and Davidson go into business together as a partnership selling computer software through the Internet. On January 1 they each put $6,000 as capital and this goes into their local bank account for the company. They bought computer equipment for $10,000 in which they paid by check and set up for business in Davidson's dad's basement. The cost of computer equipment will be amortized over the next three years with a disposable value of $1000. Davidson's dad has agreed to let them operate out of his basement if they pay him a rent of 10% of their annual profit or $1,200 per year whichever is greater. At the end of the first month of business, they have made no sales and incurred no expenses other than the amortization rate of the computer equipment and the rent which is owed to Davidson's dad. At the end of January, what is the accounting equation (assets, liabilities and equity)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. Required: 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? 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? Mr. Young's tax burden decrease or increase by ( ) NOTE: 25,400 is NOT the right answer.arrow_forward
- Mr. 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_forwardWhile James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing careers in professional cake decorating. Their company, Good to Eat (GTE), specializes in custom-sculpted cakes for weddings, birthdays, and other celebrations. James and Paul formed the business at the beginning of 2022, and each contributed $60,000 in exchange for a 50 percent ownership interest. GTE also borrowed $240,000 from a local bank. Both James and Paul had to personally guarantee the loan. Both owners provide significant services for the business. The following information pertains to GTE's 2022 activities: GTE uses the cash method of accounting (for both book and tax purposes) and reports income on a calendar-year basis. GTE received $500,000 of sales revenue and reported $230,000 of cost of goods sold (it did not have any ending inventory). GTE paid $35,000 compensation to James, $35,000 compensation to Paul, and $45,000 of compensation to other employees…arrow_forwardWhile James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing careers in professional cake decorating. Their company, Good to Eat (GTE), specializes in custom-sculpted cakes for weddings, birthdays, and other celebrations. James and Paul formed the business at the beginning of 2022, and each contributed $60,000 in exchange for a 50 percent ownership interest. GTE also borrowed $240,000 from a local bank. Both James and Paul had to personally guarantee the loan. Both owners provide significant services for the business. The following information pertains to GTE's 2022 activities: GTE uses the cash method of accounting (for both book and tax purposes) and reports income on a calendar-year basis. GTE received $500,000 of sales revenue and reported $230,000 of cost of goods sold (it did not have any ending inventory). GTE paid $35,000 compensation to James, $35,000 compensation to Paul, and $45,000 of compensation to other employees…arrow_forward
- While James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing careers in professional cake decorating. Their company, Good to Eat (GTE), specializes in custom-sculpted cakes for weddings, birthdays, and other celebrations. James and Paul formed the business at the beginning of 2022, and each contributed $180,000 in exchange for a 50 percent ownership interest. GTE also borrowed $720,000 from a local bank. Both James and Paul had to personally guarantee the loan. Both owners provide significant services for the business. The following information pertains to GTE's 2022 activities: GTE uses the cash method of accounting (for both book and tax purposes) and reports income on a calendar-year basis. GTE received $1,100,000 of sales revenue and reported $510,000 of cost of goods sold (it did not have any ending inventory). GTE paid $95,000 compensation to James, $95,000 compensation to Paul, and $105,000 of compensation to other employees…arrow_forwardWhile James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing careers in professional cake decorating. Their company, Good to Eat (GTE), specializes in custom-sculpted cakes for weddings, birthdays, and other celebrations. James and Paul formed the business at the beginning of 2022, and each contributed $180,000 in exchange for a 50 percent ownership interest. GTE also borrowed $720,000 from a local bank. Both James and Paul had to personally guarantee the loan. Both owners provide significant services for the business. The following information pertains to GTE's 2022 activities: GTE uses the cash method of accounting (for both book and tax purposes) and reports income on a calendar-year basis. GTE received $1,100,000 of sales revenue and reported $510,000 of cost of goods sold (it did not have any ending inventory). GTE paid $95,000 compensation to James, $95,000 compensation to Paul, and $105,000 of compensation to other employees…arrow_forwardWhile James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing careers in professional cake decorating. Their company, Good to Eat (GTE), specializes in custom-sculpted cakes for weddings, birthdays, and other celebrations. James and Paul formed the business at the beginning of 2022, and each contributed $180,000 in exchange for a 50 percent ownership interest. GTE also borrowed $720,000 from a local bank. Both James and Paul had to personally guarantee the loan. Both owners provide significant services for the business. The following information pertains to GTE's 2022 activities: GTE uses the cash method of accounting (for both book and tax purposes) and reports income on a calendar-year basis. GTE received $1,100,000 of sales revenue and reported $510,000 of cost of goods sold (it did not have any ending inventory). GTE paid $95,000 compensation to James, $95,000 compensation to Paul, and $105,000 of compensation to other employees…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