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Compute Robert and Susan? s taxable income for 2012




Robert and Susan (both 39) are married and have 2 children. Their son, Dylan, is;8 and their daughter, Harper, is 3. Susan sells pharmaceuticals for the Bendigo;Drug Company. Robert is a teacher at the local junior high school. In the summer;Robert earns extra money as a self-employed house painter. Their income from;their jobs is as follows;Salary Federal Tax State Tax;Withheld Withheld;Susan $80,000 $5,000 $5,400;Robert 45,000 6,100 3,150;Bendigo has a cafeteria benefits plan that lets employees select benefits equal;to as much as 10% of their annual salary or receive the cash equivalent. Susan;selects dental insurance, $160,000 in group term life insurance, disability insurance;and company-provided day care. The total cost to Bendigo of these benefits;is $6,600. Susan takes the remaining benefits to which she is entitled in cash.;Because Bendigo does not have an employee pension plan, Robert and Susan each;contribute $5,000 to their individual retirement accounts. The school district gives Robert medical insurance and group term life insurance equal to 100% of his annual salary. He pays an additional $125 a month to cover Susan and the children under his medical plan. The school district also has a qualified contributory pension plan to which it contributes 5% of Robert? s annual;salary, he is required to contribute 3%. Robert is allowed to make additional contributions;of up to 2% of his salary, and he contributes the maximum. In addition to the life insurance coverage provided by their employers, Robert and Susan purchase $100,000 in whole life insurance on each other, along with a disability insurance policy for Robert. The checkbook analysis that follows shows the costs of these policies. Susan? s job requires her to travel throughout her six-state region. Bendigo has an accountable reimbursement plan from which Susan receives $8,500 for the following expenses;Transportation $4,100;Lodging 2,700;Meals 1,800;Entertainment 1,000;Incidentals 400;In April, Susan and Robert go the racetrack with Susan? s client Annie and her husband.;After wagering $170 without winning, Susan wins $2,600 on the last race.;The racetrack withholds $780 for federal income taxes and $260 for state income;taxes.;Robert hires college students to help him paint houses. This year, he is able to;hire 8 students (two 4-person crews). Robert shuttles between sites, supervising;the jobs, talking to prospective clients, and painting. He treats the college students;as independent contractors. His business generates the following income and;expenses;Revenues $112,000;Paint 33,100;Other material 6,100;Insurance 5,500;Payments to student help 48,400;During the year, Robert and Susan receive the following portfolio income;Interest on savings account $1,900;Interest on U.S. Treasury bills 400;Cash dividends on stock 1,750;Interest on city of Buffalo bonds 600;Interest on Puerto Rico government bonds 400;Robert and Susan own 3,000 shares of qualified small business stock that they purchased;in 2003 for $37,000. Early in 2012 they sell all the shares for $16,800.;Robert and Susan also sell 100 shares of Sobey Corporation stock for a short-term;capital gain of $3,500 and 250 shares of the Bristol Corporation for a long-term;capital loss of $7,250. They pay investment interest of $550 during the year.;Robert and Susan own a 4% interest in a limited partnership. The limited partnership;reports the following information to them;Ordinary loss $2,100;Long-term capital gain 600;Charitable contribution 300;Cash distribution 2,400;During the year, the family spends 20 days at its summer home, they rent it to;vacationers for 80 days. Information pertaining to the rental is as follows;Rental income $6,500;Interest on mortgage 4,450;Property taxes 1,600;Management fee 380;Repairs 320;Utilities 650;Insurance 420;Depreciation (unallocated) 7,000;One night, while returning home from a parent-teacher conference at school;Robert is involved in an automobile accident and is hospitalized for 7 days. He;incurs $14,000 in medical expenses. His employer-provided policy reimburses him;$11,800 of the costs. In addition, his disability policy pays him $3,200 for the time;he misses from school.;The car is totally destroyed. It was purchased in 2010 for $19,500, and Robert;finds a similar car selling for $8,000. The insurance company reimburses him $6,700.;An analysis of Susan and Robert? s checkbook reveals the following payments;in 2012;Automobile insurance $1,200;Homeowners? insurance 420;Life insurance 750;Disability insurance 180;Country club dues 2,400;Health club dues 600;Optometrist 285;Veterinarian 275;Prescription drugs 175;Over-the-counter medicine 320;Chamber of Commerce contribution 150;Contribution to candidate for Congress 500;United Way 260;St. Philip? s Church 750;Randolph University 520;Auto registration on automobiles;($130 of which is a license fee) 390;Tax preparation fee 375;During 2012, Robert and Susan take out a $33,000 home equity loan that;they use to pay off $8,000 in credit card debt. The remaining loan proceeds go to;renovating the house. Interest paid on this loan totals $1,950 during 2012. Robert;and Susan purchased their current home by paying $16,000 down and signing a;$160,000 mortgage note, secured by the home. The home is worth $225,000;and the balance on the original mortgage is $134,000. They pay interest on their;home mortgage of $14,700 during 2012. They also pay $310 in interest on their;personal credit cards and $1,720 in property taxes on their home during 2012.;Compute Robert and Susan? s taxable income for 2012, the tax on this income;and the amount of any refund or additional tax due. You should provide a summary;schedule of these calculations (in proper form) with a supplemental discussion;of the treatment of each item given in the facts. If an item does not affect;their taxable income calculation, you should discuss why it doesn?t enter into the;computation.;If you are using tax forms to solve this problem, you will need the following;forms and schedules: Form 1040, Schedule A, Schedule B, Schedule C, Schedule;D, Schedule E, Form 2106, Form 4684, and Form 8606. In addition, you should;obtain a copy of the Form 1040 instructions to help you prepare the tax return.


Paper#25164 | Written in 18-Jul-2015

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