Raj has come to you in March 2019 with help regarding his 2019 estimates. He started a new business in 2018, and now he is unsure as to whether he needs to make estimates and if so when and how much he should make. He provides you with the following information. He is married. His 2018 AGI was $300,000 and his 2018 tax liability was $95,000. His business has not yet taken off and he anticipates his 2019 AGI will be $250,000 with total tax of $70,000. He spends all his time with the business so he ha

Ans. AGI of 2018 = $300000

Tax liability = $95000

AGI of 2019 = $250000

Tax liability = $70000

Wife’s salary = $15000

According to business point of view, Raj has to make estimation related to its AGI.in 2018 when he started his business his earning is good enough but in 2019 his earning is going to reduce and also its tax liability is also increase due to its business transactions. So raj has to determine and make proper estimation about the AGI that how to increase it and also after adjusting the tax liability how to earn maximum profit for the business. Estimates the source of earning and sales of the business and also determine that what are need more attention and also consider the expenses of the business that became cause of revenue reduction in the business. tax liability is the major element of the business and every business has to pay its tax liability so raj has determine accurate estimation to increasing its AGI in the upcoming years and also settle its tax liability according to specified ratio that determine by the tax department on the business.

1.      Alfred exchanges a piece of business land (FMV 100,000; adjusted basis $20,000) and $15,000 cash for another piece of business land (FMV 120,000; adjusted basis $30,000) and $10,000 cash.   5 POINTS

a.       What is Alfred’s realized gain/loss on the transaction?

And. Alfred’s realize gain/loss:

One piece of land = 100000-20000-15000= 65000

Second piece of land = 120000-30000-10000= 80000

b.      What is Alfred’s recognized gain/loss on the transaction?

Ans. Alfred’s recognize gain/ loss:

One piece of land = 100000-20000= 80000

Second piece of land = 120000-30000= 90000

c.       What is Alfred’s basis in the new land (land received)?

Ans. the FMV and basis of other piece of land = 100000+30000= 130000

Recognized gain/loss and realized gain/loss help to explain that how much the user or person save after selling the property or land and how much basis he has to face .

2.      Rochelle (who is single) has the following activity for the year.  Sold personal car for $3,000 loss.  Held the car for 2 years.  Sold principal residence for $300,000 gain.  Lived and used the residence as her principal residence for the last 3 years.  Sold Sugar stock for $4,000 gain.  Held the stock for 6 months.  Sold antique record player for $7,000 gain.  Held the record player for 10 years.  Sold Rosemary stock for $5,000 loss.  Held the stock for 3 years.  Sold business inventory for $4,000 gain.  Held the Inventory 3 months.  Sold Thyme stock for $6,000 loss.  Held the stock for 6 days. What Rochelle’s total tax liability resulting from these transactions assuming her LTCG are taxed at 15% and her marginal rate is 33%? 7 POINTS

Ans. Rochelle activities:

Sold personal car = ($3000)

Sold principle residence = $300000

Sold sugar stock = $4000

Sold antique record player = $7000

Sold rosemary = ($5000)

Sold business inventory = $4000

Sold thyme stock = ($6000)

Total earning of long term capital gain= 7000, tax liability on LTCG= 15%*7000= $1050

Total earning of short term capital gain= (3000)+300000+4000+(5000)+4000+(6000)= 294000,  tax liability of short term capital gain = 294000*33% =$97020

Total tax liability = 1050+97020 = $98070

Total tax liability is very important to determine because it help to understand the tax importance according to business point of view and also maintain the revenue of business to meet its all requirements.

3.        Beginning basis of an asset acquired is generally the purchase price.  However, there are several exceptions to this that were discussed in class.  Identify and explain at least two of the exceptions.  Include in your answer how the exception works and when it would apply.  4 POINTS

Ans. for tax purpose, basis is the amount of investment in the property. It also helpful in determining the casualty losses, depletion, amortization and depreciation. It also helpful in determine the loss and gain on the disposition and sale of the property. Different computations can be done to determine the basis of the property and also maintain all the records related to property and its transactions.

Basis is calculated into three different methods as the basis other than cost, adjusted basis and cost basis. Normally the cost of property is considered as basis of the property. Then further capitalize happen in the buying and producing of property according to user requirement. Basis is also adjusted in different events according original basis. Basis can be increase when improvements occur in the property. Asset by cost never used the basis system. In case of property that receive as gift or receive in any other matter.