Tax 4001 Rosenthal Fall 2015 Homework Set #3 — Chapter 5 Kendra Brown, a sole proprietor, acquires a new five-year asset on April 17, 2015, for…

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Tax 4001


Fall  2015

Homework Set #3 — Chapter 5

Kendra Brown, a sole proprietor, acquires a new five-year asset on April 17, 2015, for $480,000.  This is the only asset acquire by Kendra during the year.  Kendra does NOT elect §179 and elects out of bonus depreciation.  On September 1, 2016, she sells the asset.

Determine the cost recovery for 2015

Determine the cost recovery for 2016

In 2015, Sandal, Inc has qualified production activities income (QPAI) of $3.75 million and taxable income of $4 million.  Sandal pays independent contractors $500,000. Sandal’s W-2 wages are $450,000, but only $225,000 of the wages paid are to employees engaged in qualified domestic production services.

How much is the domestic production activities deduction (DPAD) for Sandal, Inc. in 2013?

What suggestions might help Sandal increase its DPAD?

Juan acquired an apartment building on November 14, 2015, for $2.74 million. The value of the land was $440,000.  Juan sold the apartment on October 22, 2021.

Determine his cost recovery for 2015

Determine his cost recovery for 2021x

Determine his adjusted basis for the building as of the date of sale.

If Juan sold the building for $2.5 million, how much was his gain?

Answer #3 again, assuming the building was a manufacturing plant instead of an apartment building.

Alsop Corporation, a calendar year C Corp, had the following income and expenses in 2015:

Income from Operations                                              $460,000

Expenses from Operations                                           160,000

Dividends Received (30% ownership)                         70,000

Capital Loss Carry back                                                  22,000

Charitable Contribution                                                              180,000

a.   What is Alsop Corporation’s charitable deduction for 2015?

b.   What happens to the portion that is not deducible, if any?

ABC is a sole proprietorship owned by Clark.  The company’s records show the following:

Sales Revenue                                                                                  345,000

Interest on State of Kansas bonds                                                  10,000

Operating Expenses                                                                         120,000

Depreciation – book purposes                                                         36,000

Cost recovery allowance for tax purposes                                     50,000

Loss on sale of truck to Clark’s granddaughter                                          4,000

Fines to the U.S. govt. for violation of emission standards         18,000

Compute ABC’s net income per books before tax.

Compute ABC’s taxable income.

VanVoorst Realty, Inc. a real estate brokerage firm, had the following income and expenses:

Commissions income                                        180,000

Commission Expense to non-brokers

(illegal under state law)                                         10,000

Commission Expense to legal brokers              11,000

Travel and Transportation                                     16,000

Supplies                                                                      5,000

Office Rent                                                                12,000

Bribes to zoning commissioners                         12,500

How much taxable income must VanVoorst Realty, Inc. report from this business?

Crystal Light (an individual) gives inventory (food) to Interfaith Hospitality Network (a charity) to be used to feed the needy.  The FMV of the food is $16,000 and its basis is $9,500. What is the maximum amount Crystal can deduct?

Answer #8 again assuming Crystal Light is Crystal Light Corporation, a C-Corp instead of an individual.

Annika sold stock in IBM Corporation (basis of $65,000) to her brother Daniel for $45,000, the stock’s FMV.

What are the tax consequences to Annika?

What are the tax consequences to Daniel if he sells the stock to an unrelated party for $110,000? For $50,000? For $67,000?

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