Help with Business Income Taxation 5 questions for chapter 8-11 1. Michael inves
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Help with Business Income Taxation 5 questions for chapter 8-11
1. Michael invests in Buxus Interests, a partnership. Michael’s capital contribution to the partnership consists of $10,000 cash and equipment with an adjusted basis of $120,000 (fair market value of $150,000) subject to a nonrecourse liability of $60,000.
a- Calculate the amount that Michael is at-risk in the activity after making the above contribution.
b- If Michael’s share of the partnership loss in the year after he makes the contribution is $150,000, how much of the loss may be deducted in that year (before considering the limitations on passive losses)? Assume the partnership had no other transactions.
c- What may Michael do with the nondeductible part of the loss in part b?
2. Cypress Road is a partnership with two partners, Saul, a 60% partner, and Robbie, a 40% partner. The partnership has income for the year of $100,000 before guaranteed payments. Guaranteed payments of $50,000 are paid to Robbie for his management services during the year. Calculate the amount of income that should be reported by Saul and Robbie from the partnership for the year.
Saul should report income of ________________.
Robbie should report income of _______________.
3. Jamie is self-employed and also has wages from another employer. During 2007, Jamie’s social security and Medicare wages were $68,500. Jamie’s net profit on Schedule C shows $77,000. Calculate the self-employment tax due for Jamie in 2007. Also determine the amount of Jamie’s deduction for self-employment taxes, to be shown on the Form 1040.
4. Fred is a cash-basis farmer. During the year, he sold crops that he had raised the previous year in the amount of $120,000. Fred also received crop insurance proceeds this year due to flooding. The crop insurance proceeds were $100,000. Fred also borrowed $30,000 from the Commodity Credit Corporation, pledging grain (in his inventory) as collateral. Fred has not made an election to treat CCC loans as income. Fred wishes to keep his tax bill as low as possible. Compute his gross income from farming, and give a detailed explanation for the treatment of the various items.
5. Suzanne was a participant in her employer’s defined contribution retirement plan until this year, when she was separated from service. Suzanne had a balance in her account of $8,450 when she left, and she had four years of service to her credit. Compute the amount of Suzanne’s vested benefit under the two most common vesting schedules for qualified plans.
Explanation / Answer
Answer 1. a. Micheal at-risk in the acticity is $70,000
1.b. It cannot exceed his basis of $70,000.
1.c. Show as an expense in his income tax return.
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