Author: admin

Sec. 179 Expensing and Mid-Quarter Convention . In 2019,
Wabash Corporation purchases two assets and places them into service (both have
a 7-year MACRS recovery period):
• Asset #1: $1,260,000 cost; placed in service in February.
• Asset #2: $1,240,000 cost; placed in service in November.
Wabash elects $1.02 million under Sec. 179 and elects out of bonus
depreciation. Compute Wabash’s tota l depreciation deduction for 2019 under
each of the following assumptions:
a. Wabash elects the $1.02 million for Asset #1.
b. Wabash elects the $1.02 million for Asset #2.

Straight-Line Depreciation. Bobby’s marginal tax rate has
been low for several years because his sole proprietorship has had low profits.
Therefore, he has not elected Sec. 179 expensing, elected out of bonus
depreciation, and elected to use the alternative depreciation system for
property acquisitions. Bobby acquires, holds, or sells the following assets in
2019:
Assume the half-year convention applies for each year.
a. What is the depreciation deduction for each asset in
2019?
b. What amount of gain or loss does Bobby recognize on the
properties sold in 2019?

Mixed Personal/Business Use. Trish is a self-employed CPA
who purchases an automo – bile for $72,000 and places it into service in 2019.
Calculate Trish’s current year MACRS depreciation deduction, assuming she does
not elect Sec. 179 expensing, she elects out of bonus depreciation, and the
half-year convention applies.
a. Trish uses the vehicle 60% for her business and 40 % for
personal purposes.
b. Trish uses the vehicle 40% for her business and 60% for
personal purposes.

Recapture of Depreciation Deductions Due to Personal Use.
Tammy acquired an automo – bile for $20,000 on July 1, 2016. Her business use
of the vehicle is 70% in 2016, 70% in 2017, 40 % in 2018, and 35% in 2019. The
property ‘s MACRS recovery period is 5 years, and Tammy does not claim Sec. 179
expensing or bonus depreciation for it. Assume the half-year convention applies.
a. Compute the MACRS depreciation deductions for each year.
b. What amount of previously claimed depreciation deductions
must Tammy recapture in 2018?

Amortization of Intangibles . On January 1 of the current
year, Palm Corporation purchases the net assets of Vicki’s unincorporated
business for $600,000. The tangible net assets have a $300,000 book value and a
$400,000 FMV. The purchase agreement states that Vicki will not compete with
Palm Corpo ration by starring a new business in the same area for a period of
five years. The stated consideration received by Vicki for the covenant not to
compete is $50,000. Other intangible assets included in the purchase agreement
are as follows:
• Goodwill: $70,000
• Parents (12-year remaining useful life): $30,000
• Customer list: $50,000
a. How wou ld Vicki’s assets be recorded for tax purposes by
Palm Corporation?
b. What is the amortization amount for each int angible
asset in the current year?

R&E Expenditures. Park Corporation incurs the following
costs in the initial year of doing business:
Park’s controller states that all of these costs are
qualifying R&E expenditures and that the company policy is to expense such
amounts for tax purposes in the year they are incurred . Which of these
expenditures are deductible as R&E costs under Sec. 174?

R&E Expenditures . In 2019, Phoenix Corporation acquires
a new research facility and hires several scientists to develop new products.
No new products are developed until 2020, although the following expenditures
were incurred :
a. What are Phoenix Corporation’s deductions for R&E
expenditures in 2019 and 2020 if the expensing method is elected?
b. How would your answer to Part a change if the deferral
and amortization method were elected and the amortization period were 60
months?

Computer Softw are. Phillips Corporat ion, a construction
company that specializes in home construct ion, uses special computer software
to schedule jobs and keep track of job costs. It uses generic software for
bookkeeping and spreadsheet ana lysis. During 2019, Phillips Corporation had
the following transactions relating to computer software : 1:10-46
• The corporation purchased a new computer system on May 12,
2019, for $15,000 . The system included computer hardware and built-in computer
software valued at $3,000. The corpora tion has never separated computer
software from the hardware in prior years when a computer system was purchased.
• The corporation separately purchased new bookkeeping
software on September 1, 2019, for $5,760.
• On June 1, 2019, Phillips Corporation acqu ired another
home building company to strengthen its position in higher-priced homes. The
total purchase price was $700,000 allocated to specific assets as follows:
What amount can Phillips Corporation deduct in 2019 with
respect to computer software?

John and Ellen Brite are married and file a joint return.
They have no dependents. John owns an unincorporated specialty electrical
lighting retail store, Brite-On. Brite-On had the following assets on January
1, 2018:
Brite-On purchased a competitor’s score on March 1, 2018,
for $206,000. The purchase price included the following:
On June 30, 2018, Brite-On sold the 7-year recovery period
equipment for $12,000. Brite-On leased a car for $860/monrh beginning on June
1, 2018. The car is used 100% for business and was driven 14,000 miles during
the year. Brice-On sold 8,000 light bulbs at a price of $15/bulb during the
year. Also, Brite-On made additional purchases of 4,000 light bulbs in August
2018 at a cost of $7/bulb. Brite-On had the following revenues (in addition ro
the sales of light bulbs) and additional expenses:
John and Ellen also had some personal expenses:
Ellen receives $42,000 of wages from employment elsewhere,
from which $4,000 of federal income taxes were withhe ld. The Brites received
interest income on a bank savings account of $275 and qua lified dividends of
$1,425 . John and Ellen made four $3,900 quarterly estimated tax payments . For
self-employment tax purposes, assume John spent 100% of his time at the store
while Ellen spends no time at the store.
Additional Facts:
• Equipment acqu ired in 2013: The Brires elected out of
bonus deprec iation and did nor elect Sec. 179 . • Equipment acqu ired in 2018:
The Brires elected Sec. 179 to expense the cost of the 5-year equipment. •
Assume that the lease inclusion rules require chat Brite-On reduce its annual
deduct – ible lease expense by $41. Compute the Brice’s taxable income and
balance due or refun d for 2018 .

Thom Jones (SSN 000 -00-1111) is an unincorporated
manufacturer of widgets. He uses the LCM method to value his inventory and
reports the following for 2018:
The business operates under the name Jones Widger Company
and is located at 400 W. Main Street in Springfield, Maryland 21368. Its
employer identification number is 55-9876543. The business uses the cash
method, Thom materially participates in it, and it did nor make any payments
that would require it to file Form 1099. Complete Thom’s 2018 Form 4562 and
Schedule C of Form 1040, assuming he elects to expense the maximum amount
possible under Sec. 179 and uses bonus depreciation for any eligible amounts
exceeding the Sec. 179 maximum.