CASE – 2

CALCULATION OF THE DEDUCTION FOR THE TAX YEAR 2013

SITUATION 1: Expenses $3,000

NJ Partnership firm, a calendar year taxpayer, incurred $3000 of organizational expenses on

July 1st, 2013. It can deduct the entire amount of the organizational expenses during the taxable
year in which the partnership NJ begins business.

SITUATION 2: Expenses $43,000

Expenditure more than $5,000 but less than or equal to $50,000.

Partnership NJ can deduct $ 5,000 and the portion of the remaining $38,000 (43,000 – 5,000)
that is allocable to July through December of 2013(6months) i.e.,

(38,000/180 months)* 6 months = $1267

Partnership NJ may amortize the remaining $ 36,733 ($38,000 - $1267 = 36,733) ratably over
the remaining 174 months.

Therefore, $6267 ( $5000 + $1267) deduction can be taken in situation for the tax year 2013.

SITUATION 3: Expenses $150,000

For expenditure of more than $ 55,000 straight away deduction of $5,000 is not applicable. In
this situation the expenses incurred is $ 150,000. Therefore, the deduction can be taken by the
partnership for the tax year 2013 is $5000 i.e.,

(150,000/180months) * 6months = $5,000

CASE - 3
CALCULATION OF THE BASIS OF BOULT AND TAYLOR POST SALE OF THE
ASSET FOR THE TAX YEAR 2016.

Particulars Amount ($)

FMV 80,000
 Less: Adjusted basis of the asset 60,000
Pre-contribution gain earned by the Taylor 20,000

Particulars Amount ($)

Selling price of the asset 120,000
Basis of the asset 60,000
Gain of the asset 60,000

The $60,000 gain is allocated to Boult and Taylor as follows

➢ $ 40,000 to Taylor

Pre-contribution gain 20,000

Add: Post contribution gain 20,000

[ 50% partnership interest * 40,000 (60,000-20,000)]
Total gain received by the Taylor 40,000

➢ $ 20,000 to Boult [50% partnership interest * 40,000]

COMPUTATION OF GUARANTEED PAYMENT AMOUNT FOR THE TAX YEAR

2019

Alex share is $21,000 ( 30% of 70,000). Since he has a guaranteed minimum of $ 25,000,
$4,000 is considered as his guaranteed minimum and the other $21,000 is his distributive share.

Therefore, the guaranteed payment amount for the tax year 2019 is $4,000.

COMPUTATION OF THE BOOK NET INCOME FOR THE YEAR 2020.

Particulars Amount ($) Amount ($)

Taxable income 351,000
Add: items that increase the income as per book 7,500
Tax-exempt interest income

7,500
358,500

Less: items that decrease the income as per book

MACRS depreciation less than that of st.line 6,000

depreciation used for financial statement

Non-deductible entertainment 2,000

(8000)
Book Income 350,500