Questions -
Q1. Kendra Brown, a sole proprietor, acquires a new five-year asset on April 17, 2014, 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, 2014, she sells the asset.
a. Determine the cost recovery for 2014.
b. Determine the cost recovery for 2015.
Q2. In 2014, 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.
a. How much is the domestic production activities deduction (DPAD) for Sandal, Inc. in 2013?
b. What suggestions might help Sandal increase its DPAD?
Q3. Juan acquired an apartment building on November 14, 2014, for $2.74 million. The value of the land was $440,000. Juan sold the apartment on October 22, 2020.
a. Determine his cost recovery for 2014.
b. Determine his cost recovery for 2020.
c. Determine his adjusted basis for the building as of the date of sale.
d. If Juan sold the building for $2.5 million, how much was his gain?
Q4. Answer #3 again, assuming the building was a manufacturing plant instead of an apartment building.
Q5. Alsop Corporation, a calendar year C Corp, had the following income and expenses in 2014:
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 2014?
b. What happens to the portion that is not deducible, if any?
Q6. 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
a) Compute ABC's net income per books before tax.
b) Compute ABC's taxable income.
Q7. Van Voorst Realty, Inc. a real estate brokerage firm had the following income and expenses:
Commissions income180,000
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 Van Voorst Realty, Inc. report from this business?
Q8. 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?
Q9. Answer #8 again assuming Crystal Light is Crystal Light Corporation, a C-Corp instead of an individual.
Q10. Annika sold stock in IBM Corporation (basis of $65,000) to her brother Daniel for $45,000, the stock's FMV.
a. What are the tax consequences to Annika?
b. 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?