MGMT 504 – Homework #2
12 points – Due Monday, February 6, 2023 by midnight
INDIVIDUAL PROJECT
You must complete the project electronically (i.e., it cannot be hand written) and turn it in through Brightspace. Show all work!
“As a boilermaker pursuing academic excellence, I pledge to be honest and true in all that I do. Accountable together ‐ we are Purdue.”
I, (Print Name), PU ID Number:
affirm that I have neither given, received, nor witnessed unauthorized aid on this assignment and have completed this work honestly and according to the Purdue University Code of Honor.
© , Students may not copy, reproduce or post to any other outlet or websites without permission
Problem 1: Capital Gain & Loss Netting Problem
Shaun Murphy sells the following capital assets in 2022:
· A truck for $10,000 on June 1, 2022. He originally purchased it in 2017 for $12,000 and used it for personal purposes.
· NFT (treated as a collectable and held for investment) on September 15, 2022 for $1,100. Shaun originally purchased the NFT for $5,000 on March 16, 2020.
· A rental property for $120,000 (he has to pay $10,000 to a realtor as a sales commission) on June 12, 2022. He originally purchased the property for $100,000 on April 12, 2014. All of the gain is unrecaptured Sec. 1250 gain.
· Coke stock for $5,000 on October 31, 2022 that he originally purchased on February 10, 2021 for $3,000.
· Nike stock for $6,000 on April 15, 2022 that he originally purchased on January 1, 2022 for $10,000.
A) Calculate the capital gain or loss on each asset and complete the required capital gains netting process. After all netting how will Shaun be taxed on the sale of the assets? He has no other sale of capital assets.
B) What if Shaun also has a long-term capital loss carryforward of $15,000? After all netting how will Shaun be taxed on the sale of the assets? He has no other sale of capital assets.
Fill out the following tables. The first table calculates the gain or loss realized, recognized, and character for each asset. The second table calculates the capital gain and loss netting process.
Calculation of gain or loss realized, recognized and character. If the character is long-term (LT), you should also input whether it is taxed at 28%, 25%, or 0/15/20%.
Amount Real.
Adj. Basis
Capital gain and loss netting process. Make sure the final amounts that will be reported on the tax return are clearly stated.
LT – 0/15/20%
Capital gain and loss netting process for scenario B. Make sure the final amounts that will be reported on the tax return are clearly stated.
LT – 0/15/20%
Problem 2: Calculate Gross Income
Spencer Strasmore engages in the following transactions in 2022:
· Receives wages paid in cash of $50,000.
· In addition to his wages, his employer paid health insurance premiums on his behalf totaling $15,000.
· His employer also contributed $10,000 to a 401(k) on his behalf. He also elected to have $10,000 of his wages contributed to the 401(k) (these wages are not included in the $50,000 listed above).
· Spencer received a statement from his 401(k) account stating there was a $2,000 capital gain in the current year that resulted from the sale of a mutual fund held in the 401(k) account. He did not receive any distributions from the account.
· Spencer also has a side business that does consulting. In the current year he provided consulting services for a friend and since his friend was low on cash they agreed that the friend would pay him by painting his house. The FMV of the painting is $8,000.
· Receives municipal bond interest from the city of West Lafayette bonds of $5,000.
· Spencer owns stock in Microsoft and the value of the stock increased from $4,000 to $6,000 during 2022. He did not sell any of the stock.
· He received a gift from his grandma of $10,000.
· Spencer owns a 20% interest in a LLC (taxed as a partnership). He received a Schedule K-1 from the partnership indicating that his share of the LLC income was $8,000 of ordinary income and $2,000 of 0/15/20 long-term capital gain income.
· He purchased 100 shares HP stock in 2012 for $2,000 and sold the stock for $1,000 on June 12, 2022. He also purchased 200 shares of HP on June 15, 2022 for $1,200.
· In June 2022, he received a refund of $900 of state income taxes he paid last year. He had itemized deductions of $13,590 in 2021 (assume the standard deduction was $12,950) including state income taxes paid of $1,750.
· He sold Disney stock for $10,000 on April 15, 2022 that he originally purchased on February 13, 2015 for $16,000.
Calculate Spencer’s gross income for 2022.
Amount included in Gross Income
Health insurance premiums
401(k) contributions
Gain in 401(k)
Consulting
Microsoft stock
State tax refund (see calculation below)
Net capital gain (loss) (show calculation below)
Gross Income
Net capital gain (loss):
Other Calculations: