Category: Writing

Comparison of Tax Entities.
a. Keith Thomas and Thomas Brooks began a new consulting
business on Januar y 1,
2019. They organized the business as a C corporation, KT,
Inc. During 2019, the
corporation was successful and generated revenues of
$2,000,000. KT had operat –
ing expenses of $800,000 before any payments to Keith or
Thomas. During 2019,
KT paid dividends to Keith and Thomas in the amount of
$450,000 each. Assume
that Keith ‘s wife earned $120,000 from her job, they file a
joint return, have itemized deductions of $40,000, and have no children.
Compute the total tax liability
of KT and Keith and his wife for 2019.
b. Instead of organizing the consulting business as a C
corporation, assume Keith and Thomas organized the business as a limited
liability company, KT, LLC. KT made a distribution of $450,000 each ro Keith
and Thomas during 2019. Compute the total tax liability of KT and Keith for
2019. Ignore any additional tax on net investment income.

Carolyn operates a consulting business as a sole proprietor
(unincorporated). Caro lyn has been approached by one of her major clients to
become an employee. If she accepts the new job, she would no longer operate her
consulting business. From the standpoint of paying Social Security taxes, would
Carolyn ‘s Social Security taxes increase or decrease if she becomes an
employee? Why? (Assume Carolyn will earn less than $200,000.)

Estate Tax . Clay, who was single, died in 2019 and has a
gross estate valued at $8,500,000. Six months after his death, the gross assets
are valued at $9,000,000. The estate incurs funeral and administration expenses
of $125,000. Clay had debts amount – ing to $150,000 and bequeathed all of his
estate to his children. During his life, Clay made no taxable gifts.
a. What is the amount of Clay’s taxable estate?
b. What is the tax base for computing Clay’s estate tax?
c. What is the amount of estate tax owed if the tentative
estate tax (before credits) is
$3,235,800?
d. Alternatively, if, six months after his death, the gross
assets in Clay’s estate declined in
value to $7,500,000, can the administrator of Clay’s estate
elect the alternate valuation dare? What are the important factors chat the
administrator should consider as to
whether the alternate valuation date should be elected?
e. How would your answer change in parts a, b, and c if
Clay’s gross estate was $18,500,000
rather than $8,500,000 and the tentative estate tax before
credits was $7,235,800?

1. Most estates are not subject to the federal estate tax.
a. Why is this the case? b. Do you believe most estates should be subject to
the federal estate tax?
2. Indicate which of the following taxes are generally
progressive, proportional, or regressive:
a. State income taxes
b. Federal estate tax
c. Corporate state franchise tax
d. Property taxes
e. State and local sales taxes

Gift Tax. Betty, a married taxpayer, makes the following
gifts during the current year (2019): $20,000 to her church, $100,000 to her
daughter, and $40,000 ro her husband. What is the amount of Berty’s taxable
gifts for the current year (assuming that she does not elect to split the gifts
with her spouse)?

Carlos inherits 100 shares of Allied Corporation stock from
his father. The stock cost his father $8,000 and had a $25,000 FMV on the date
of his father’s death in 2019. The alternate valuation date was not elected. If
Carlos sells the Allied Corporation stock for $27,000, what would be his
taxable gain on the sale?

Marginal Tax Rate. Jill and George are married and file a
joint return. They expect to have $425,000 of taxable income in the next year
and are considering whether ro purchase a personal residence that would provide
additional tax deductions of $40,000 for mortgage interest and real estate
taxes.
a. What is their marginal tax rate for purposes of making
chis decision?
b. What is the tax savings if the residence is acquired?

Carmen has computed that her average tax rate is 16% and her marginal tax rate is 24% for the current year. She is considering whether to make a charitable contribution to her church before the end of the tax year. Which tax rate is of greater significance in measuring the tax effect for her decision? Explain.

Tax Rates. Latesha, a single taxpayer, had the following
income and deductions for the tax year 2019:
a. Compute Laresha’s taxab le income and federal tax
liability for 2019 (round to dollars and ignore the qualified business income
deduction for chis problem).
b. Compute Laresha ‘s marginal, average, and effective tax
rates.
c. For tax planning purposes, which of the three rates in
Part b is the most important?

1.The profession of tax practice involves four principal
areas of activity. Discuss these four areas.
2. Many tax professionals have moved into the field of financial
planning for their clients.
a. How do taxes impact financial planning for a client?
b. Why do tax professionals have a perfect opportunity to
perform financial planning for their clients?