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tax problems - questin and answer,.,. ch 15




Question;31. LO.2 Use the following data to calculate Chiara?s 2012 AMT base. Chiara files as a single taxpayer.Taxable income $148,000Positive AMT adjustments 73,000Negative AMT adjustments 55,000AMT preferences 30,00032. LO.2 Arthur Wesson, an unmarried individual who is age 68, reports 2013 taxable income of $160,000. He records AMT positive adjustments of $40,000 and tax preferences of $35,000.a. What is Arthur?s AMT?b. What is the total amount of Arthur?s tax liability?c. Draft a letter to Arthur explaining why he must pay more than the regular income tax liability. Arthur?s address is 100 Colonel?s Way, Conway, SC 29526.33. LO.2 Calculate the 2013 AMT for the following cases. The taxpayer reports regular taxable income of $450,000 and does not claim any tax credits.Tentative Minimum TaxFiling Status Case 1 Case 2Single $200,000 $190,000Married, filing jointly 200,000 190,000 34. LO.2 Calculate the 2013 AMT exemption amount for the following cases for a single taxpayer, a married taxpayer filing jointly, and a married taxpayer filing separately.Case AMTI1 $150,0002 300,0003 800,00035. LO.2 Leona holds 2013 nonrefundable tax credits of $65,000. None of these nonrefundable credits are personal credits that qualify for special treatment. Her regular income tax liability before credits is $190,000, and her tentative minimum tax is $150,000.a. What is the amount of Leona?s AMT?b. What is the amount of Leona?s regular income tax liability after credits?36. LO.2, 3, 8 Angela, who is single, incurs circulation expenditures of $153,000 during 2013. She is in the process of deciding whether to expense the $153,000 or to capitalize it and elect to deduct it over a three-year period. Angela already knows that she will be subject to the AMT for 2013 at both the 26% and the 28% rates.Angela is in the 28% bracket for regular income tax purposes this year (she records regular taxable income of $153,000 before considering the circulation expenses). She expects to be in the 28% bracket in 2014 and 2015.Advise Angela on whether she should elect the three-year write-off rather than expensing the $153,000 in 2013.37. LO.2, 3 Vito owns and operates a news agency (as a sole proprietorship). During 2013, he incurred expenses of $600,000 to increase circulation of newspapers and magazines that his agency distributes. For regular income tax purposes, he elected to expense the $600,000 in 2013. In addition, he incurred $120,000 in circulation expenditures in 2014 and again elected expense treatment. What AMT adjustments are required in 2013 and 2014 as a result of the circulation expenditures?38. LO.3 Lorenzo owns two apartment buildings. He acquired Forsythia Acres on February 21, 1998, for $300,000 ($90,000 allocated to the land) and Square One on November 12, 2013, for $800,000 ($100,000 allocated to the land). Neither apartment complex qualifies as low-income housing. If Lorenzo elects to write off the cost of each building as quickly as possible, what is the effect of depreciation (cost recovery) on his AMTI for:a. 1998?b. 2013?39. LO.3, 8 Helen Carlton acquired used equipment for her business at a cost of $300,000. The equipment is five-year class property for regular income tax purposes and for AMT purposes. Helen does not claim any additional first-year depreciation.a. If Helen depreciates the equipment using the method that will produce the greatest current deduction for regular income tax purposes, what is the amount of the AMT adjustment? Helen does not elect ? 179 limited expensing.b. How can Helen reduce the AMT adjustment to $0? What circumstances would motivate her to do so?c. Draft a letter to Helen regarding the choice of depreciation methods. Helen?s address is 500 Monticello Avenue, Glendale, AZ 85306.40. LO.3, 8 Geoff incurred $900,000 of mining and exploration expenditures. He elects to deduct the expenditures as quickly as the tax law allows for regular income tax purposes.a. How will Geoff?s treatment of mining and exploration expenditures affect his regular income tax and AMT computations for the year?b. How can Geoff avoid having AMT adjustments related to the mining and exploration expenditures?c. What factors should Geoff consider in deciding whether to deduct the expenditures in the year incurred?41. LO.3 Rust Company is a real estate construction business with average annual gross receipts of $3 million. Rust uses the completed contract method on a particular contract that requires 16 months to complete. The contract is for $500,000, with estimated costs of $300,000.At the end of 2013, $180,000 of costs had been incurred. The contract is completed in 2014, with the total cost being $295,000. Determine the amount of any AMT adjustments for 2013 and 2014.42. LO.3 Burt, the CFO of Amber, Inc., is granted stock options in 2013 that qualify as incentive stock options. In 2018, the rights in the stock become freely transferable and not subject to a substantial risk of forfeiture. Burt exercises the stock options in 2017 when the option price is $75,000 and the fair market value of the stock is $90,000. He sells the stock in 2021 for $150,000. What are the regular income tax consequences and the AMT consequences for Burt in:a. 2013?b. 2017?c. 2018?d. 2021?43. LO.3 In 2013, Liza exercised an incentive stock option that had been granted by her employer, White Corporation. Liza acquired 100 shares of White stock for the option price of $190 per share. The rights in the stock become freely transferable and not subject to a substantial risk of forfeiture in 2013. The fair market value of the stock at the date of exercise was $250 per share. Liza sells the stock for $340 per share later in 2014.a. What is Liza?s AMT adjustment in 2013? What is her recognized gain on the sale for regular income tax and for AMT purposes?b. How would your answers in (a) change if Liza had sold the stock in 2014 rather than 2013?44. LO.3 Alicia owns two investment properties that she acquired several years ago. Her adjusted basis in the assets is as follows.Regular Income Tax AMTLand $100,000 $100,000Apartment building 450,000 490,000Alicia sells the land for $250,000 and the building for $800,000.a. Calculate Alicia?s recognized gain or loss on the sale of each asset for regular income tax and AMT purposes.b. Determine the AMT adjustment on the sale of each asset.45. LO.3 Freda acquired a passive activity this year for $870,000. Gross income from operations of the activity was $160,000. Operating expenses, not including depreciation, were $122,000. Regular income tax depreciation of $49,750 was computed underMACRS. AMT depreciation, computed under ADS, was $41,000. Compute Freda?s passive loss deduction and passive loss suspended for regular income tax purposes and forAMT purposes.46. LO.3 Sammy and Monica, both age 67, incur and pay medical expenses in excess of insurance reimbursements during the year as follows.For Sammy $16,000For Monica (wife) 4,000For Chuck (son) 2,500For Carter (Monica?s father) 5,000Sammy and Monica?s AGI is $185,000. They file a joint return. Chuck and Carter areSammy and Monica?s dependents.a. What is Sammy and Monica?s medical expense deduction for regular income tax purposes?b. What is Sammy and Monica?s medical expense deduction for AMT purposes?c. What is the amount of the AMT adjustment for medical expenses?47. LO.3 Wolfgang is age 33. His AGI is $125,000. He reports the following itemized deductions for 2013.Medical expenses [$15,000? (10% ? $125,000)] $ 2,500State income taxes 4,200Charitable contributions 5,000Home mortgage interest on his personal residence 6,000Casualty loss (after $100 and 10% reductions) 1,800Miscellaneous itemized deductions [$3,500? (2% ? $125,000)] 1,000 $20,500a. Calculate Wolfgang?s itemized deductions for AMT purposes.b. What is the amount of the AMT adjustment?="color:>


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