Reference no: EM133072191
1) James Jones is the owner of a small retail business operated as a sole proprietorship. During 2020, his business recorded the following items of income and expense:
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Revenue from inventory sales
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$147,000
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Cost of goods sold
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33,500
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Business license tax
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2,400
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Rent on retail space
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42,000
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Supplies
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15,000
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Wages paid to employees
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22,000
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Payroll taxes
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1,700
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Utilities
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3,600
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Compute taxable income attributable to the sole proprietorship by completing Schedule C to be included in James's 2020 Form 1040.
Compute self-employment tax payable on the earnings of James's sole proprietorship by completing a 2020 Schedule SE, Form 1040.
Assume that James's business is not a service business, and that it has $155,000 unadjusted basis in tangible depreciable property. Calculate James's 2020 QBI deduction, before any overall taxable income limitation.
2) Colin, a self-employed consultant, uses a room of his home as a business office. This room represents 10 percent of the home's square footage. This year, Colin incurred the following expenses in connection with his home:
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Home mortgage interest
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$12,980
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Property tax on residence
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2,200
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Homeowner's insurance
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1,475
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Utilities
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2,100
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Furnace repairs
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300
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Colin purchased the home in 2000 for $225,000. For MACRS depreciation purposes, he allocated $185,000 to the building and $40,000 to the land.
If Colin's gross business income exceeded his operating expenses by $75,000, compute his net profit for the year.
If Colin's gross business income exceeded his operating expenses by $1,800, compute his net profit for the year.
3) JC recently graduated from veterinary school and opened her own professional practice. This year, her net profit was $32,000. Assume JC does not qualify for the QBI deduction. Compute JC's after-tax income from her practice assuming
Her self-employment tax is $4,522, and her marginal income tax rate is 22 percent.
What percentage of the federal tax burden on JC's business income is represented by the self-employment tax?
4) Corporation P owns 93 percent of the outstanding stock of Corporation T. This year, the corporation's records provide the following information:
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Corporation P
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Corporation T
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Ordinary operating income (loss)
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$500,000
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$(200,000)
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Capital gain (loss)
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(8,300)
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6,000
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Section 1231 gain (loss)
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(1,000)
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5,000
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Compute each corporation's taxable income if each files a separate tax return.
Compute consolidated taxable income if Corporation P and Corporation T file a consolidated tax return.
5) Landover Corporation is looking for a larger office building to house its expanding operations. It is considering two alternatives. The first is a newly constructed building at a cost of $6 million. It would require only minor modifications to meet Landover's needs, at an estimated cost of $500,000. The second building was constructed in 1910 and is a certified historic structure. It could be purchased for $3 million but would require an additional $4 million in renovations to be suitable for Landover.
Calculate Landover's allowable rehabilitation credit if it chooses to purchase and renovate the certified historic structure, and the after-tax purchase price of the building. Assume Landover would claim the credit ratably over years 0 through 4. Landover uses a 4 percent discount rate to calculate present value.
Based on your analysis, which building should Landover acquire?
How might your analysis and conclusion change if Landover is currently experiencing net operating losses and does not expect to pay regular tax for several years?