Income Taxation SOLUTIONS Income Tax Concepts and Compliance

Problem 1

Basic Tax (68,000/25%) 272,000 4/15/2017

Surchage Penalty 68,000 12/31/2017 260
Interest for 2017 (272,000 x 20% x 260/365) 38,751 1/11/2021 1,107
Interest for 2018 and later (272,000 x 12% x 1,107/365) 98,993
Total, exclusive of compromise penalty 477,744

Problem 2

Tax Accrual Basis Tax Cash Basis

Gross Income:
Cash Income 770,000 830,000
Accrued Income 50,000 -
Advanced Income 40,000 860,000 40,000 870,000
Deductions:
Cash Expense 380,000 405,000
Depreciation 80,000 80,000
Amortization of Prepayments 20,000 20,000
Accrued Expense 35,000 515,000 - 505,000
Net Income 345,000 365,000

Problem 3

Outright Method

Cost of the Building 2,700,000

Rentals during 2020 240,000
2020 Taxable Income 2,940,000

Spread-Out Method

Cost of the Building 2,700,000

Multiply: Useful Life after Lease Term (40-22.5) 17.5
Divide by: Total Useful Life 40
Depreciated Value 1,181,250
Divide by: Useful Life Within the Lease Term (25-2.5) 22.5
Annual Income from Leasehold Improvement 52,500
Half-Year Usage for 2020 2
Income from Leasehold Improvement during 2020 26,250
Rentals during 2020 240,000
2020 Taxable Income 266,250

Problem 4

Monthly Earnings 90,000

October to December 5
Total 450,000

Problem 5

Within Without Total

Compensation 420,000 420,000
Professional Fees 80,000 80,000
Rent Income 500,000 500,000
Gain on sale 100,000 100,000
Business income 600,000 600,000
Interest Income 50,000 50,000
Total 1,170,000 580,000 1,750,000
Income Taxation SOLUTIONS Income Tax Concepts and Compliance

Problem 6

Step 1

The sale is made by a dealer of real property.

Step 2

Downpayment 200,000
Quarterly Payments (9 x 100,000) 900,000
Mortgage Assumed 1,700,000
Selling Price 2,800,000

Step 3

Mortgage Assumed 1,700,000

Tax Basis 1,500,000
Excess Mortgage 200,000

Step 4

Downpayment 200,000
Excess Mortgage 200,000
Quarterly Payments within 2020 (3 quarters) 300,000
Initial Payment 700,000

Step 5

Initial Payment 700,000

Divide by: Selling Price 2,800,000
IP/SP Ratio 25.00%

~Instalment Method is allowed.

Step 6

Selling Price 2,800,000

Mortgage Assumed (1,700,000)
Excess Mortgage 200,000
Contract Price 1,300,000

Step 7

Selling Price 2,800,000

Tax Basis 1,500,000
Gross Profit 1,300,000

Step 8

Initial Payment (Total Collections in 2020) 700,000

Multiply by: Contract Price 1,300,000
Divide by: Gross Profit 1,300,000
Gross Income in 2020 700,000

Problem 7

2020 2021 2022 2023

Contract Price 5,000,000 5,000,000 5,000,000 5,000,000
Income Taxation SOLUTIONS Income Tax Concepts and Compliance

Percent Completed 10% 25% 35% 30%

Construction Revenue - Current 500,000 1,250,000 1,750,000 1,500,000
Construction Expense - Current 300,000 800,000 700,000 800,000
Gross Income 200,000 450,000 1,050,000 700,000