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Jack is start ing a business that he expects to produce
$190,000 of income this year before compensating Jack for his services. He has
$5,000 of other income and itemized deductions totaling $20,000 . He wants ro
know whether he should incorporate or opera te the business as a propr
ietorship . If a corpora tion is formed, he wants ro know whether he should
make an S election. If he incorporates, the corporat ion will pay Jack a salary
of $100,000. He expects to distribute an additiona l $7,500 of corpora te
profits ro himself each year. Jack is single. Required : Which organizationa l
form, proprietorsh ip, S corporatio n, or C corpora – tion, will produce the
lowest total current income tax liability for Jack and his business? Ignore payroll
and ocher taxes.

Andrea, who is in the 37 % tax brac ket, is interested in
reducing her taxes. She is considering several alternatives . For each
alternative listed below, indicate how much tax, if any, she would save? (For
chis problem, ignore the additional 3.8 % tax .)
a. Give $2,000 to a charity. Assume she itemizes.
b. Give $2,000 to a charity. Assume she does not itemize.
c. Ma ke a gift of bonds valued at $8,000 yielding $600 of
interest annually ro her 15-yearold daughter who has no other income.
d. Sell the bonds from part c for $8,000 and buy tax-exempt
bonds yielding $300 .

Zachary L. (SSN 123-45-6789) and Cici K. Mao (SSN
987-65-4321) reside at 520 Chesmut Street, Philadelphia, Pennsylvania 19106.
They are both under 65 years old and have one dependent (their son, Oliver, age
4, SSN 111-22-3333 ). They do not wish to take advantage of the presidentia l
election campaign check-off. Other relevant information includes:
John ‘s itemized deductions tota l $11,000. Complete Form
1040 and Schedule 1 for 2018. Assume any estimated tax penalty is zero.

Tracy M. Kidwell (SSN 433-33-3333) is single, 12 years old,
and a dependent of her parents. She resides at 600 S. Maestri Place, New
Orleans, LA 70130. Tracy’s only income is $9,000 of taxable interest, she does
not itemize deductions, and she had no withhold – ings and made no estimated
tax payments. Tracy’s parents (Kelly S. and James R. Kidwell) are married, file
jointly, and list Kelly’s name first on their return (SSN 433-33 -1111).
Prepare Forms 1040 and 8615 for Tracy for 2018. Assume any estimated tax penalty
is zero.

Bala and Ann purchased as investments three identica l
parcels of land over a several – year period. Two years ago they gave one
parcel to their daughter, Kim, who is now age 16. They have an offer from an
investor who is interested in acquiring all three parcels. The buyer is able to
purchase only two of the parcels now, but wants to purchase the third parce l
tvo or three years from now, when he expects to have available funds to
acquire the property. Because they paid different prices for the parcels, the
sales will result in different amounts of gains and losses. The sale of one
parcel owned by Bala and Ann will result in a $20,000 gain and the sale of the
ocher parcel will result in a $28,000 loss. The sale of the parcel owned by Kim
will result in a $19,000 gain. Kim has no other income and does not expect any
significant income for several years. Bala and Ann, however, are in the 37% tax
bracket. They do nor have any other capital gains chis year. Which two
properties would you recommend that they sell this year? Why?

Ed provides all the support for his stepdaughter, her
husband, and their child since his wife’s death three years ago. Ed promised
his late wife char he would support her daughter from a former marriage and her
daughter ‘s husband until they both finished college. They live in another
state, and have no gross income. Which of the three individuals can Ed claim as
dependents?
A partial list of research sources is
• Sec. 152
• Reg. Sec. 1.152 -2
• Desio Barbetti, 9 T.C. 1097 (1947 )