Reasonable salary and bonus income of a sole shareholder of Camel Corp
Camel is the sole shareholder of Desert, Inc. Desert’s taxable income before the payment of Camel's salary is $175,000. Based on this, Camel has the corporation pay him a salary of $100,000 and a bonus of $75,000. A reasonable salary and bonus would be $125,000. Which of the following is correct? a. The taxable income of ...continues
Asset basis and Capital basis in a partnership: contribution of property
A taxpayer contributes property with an adjusted basis of $125,000 and a fair market value of $155,000 to her business entity. If the entity is a partnership and the transaction qualifies under § 721, the partnership's basis for the asset and the partner's basis for her partnership interest are: Asset Basis Interest Basis ...continues
Tax return preparation: where are refunded fees for preparation deducted?
Bill and Ann are unrelated taxpayers. Both had their taxes prepared last year by the same tax preparer. Bill paid $300 for his tax return preparation while Ann paid $500 for hers. Bill is an employee (receives a Form W-2) while Ann is self-employed (files Form Schedule C). Two years later, as a result of an agreement with state ...continues
Solutions Corp: accrual entries for remodeling, warranty, trade seminars
Solutions Corporation a computer vendor and consulting company used the accrual method of accounting. Its tax year is the calendar year. The following are three of the corporations transactions during the current year. 1. Solutions Corporation hired a contractor to remodel its sales floor. The contractor completed the remode ...continues
Multiple Choice - Deductions and Losses for tax reporting
Agnes is the sole shareholder of Violet, Inc. For 2007, she receives from Violet a salary of $200,000 and dividends of $100,000. Violet's taxable income fro 2007 is $500,000. On audit, the IRS treats $50,000 of Agnes's salary as unreasonable. Which of the followign statements is correct? a. Agnes's gross income will increa ...continues
Tax Issues: Hobby loss rules for the ranch. Martha is a successful orthodontist
After many years as a successful orthodontist, Martha has decided to buy a ranch in the country. Martha has always liked horses and anticipates acquiring several for the ranch. On the weekends, Martha can relax at the ranch and ride her horses. The cost of operating the ranch and owning horses will be substantial so she plans to ...continues
Depreciation on Vehicles to maximize tax benefit
Grace, drops by the office on the Monday after Thanksgiving. She says that over the holiday she was reviewing her books and projecting the remainder of the tax year. She projects that her Schedule C will show a net profit of $300,000 this year. This is substantially higher than in the prior year. She is concerned that she wi ...continues
T-F 1. S corporations who chose to be taxable C corporations may have to pay a 35 percent tax on certain built-in gains. 2. Revenue agents who audit S corporations are on the alert for shareholder/employee salaries that are unreasonably low. 3. An S corporation can use any taxable year it wishes. 4. A taxable C c ...continues
Don is the beneficiary of a $50,000 insurance policy on the life of his mother, Anna. To date, Anna paid premiums of $16,000. What amount of gross income must be reported in each of the following cases? a. Anna elects to cancel the policy and receives $20,000, the cash surrender value of the policy. b. Anna dies and Don rece ...continues
In which of the following situations would the taxpayer realize taxable income? a. A mechanic performs work on his own automobile. The mechanic would have charged a customer $400 for doing the same work. b. A mechanic repairs his neighbor's personal automobile. In exchange, the neighbor, an accountant, agrees to prepare me ...continues
