Description of this paper

Individual tax return problem Jose and Rosanna Martinez are married and have two children:


solution. updated


Individual tax return problem


Jose and Rosanna Martinez are married and have two children: Carmen (19) and Greg (10). Carman is a full-time student; she lives at home and commutes to school.


Jose is an architect for Deco Design and is covered by his employer’s defined benefit pension plan. His Form W-2 for 2013 reported the following information:


Wages $65,000 Federal tax W/H $6100


Soc Sec Wages $65,000 Soc Sec Tax W/H $4030


Medicare Wages $65,000 Medicare Tax W/H $942.5


Rosanna was a loan officer at BankOne until October of the current year. Her Form W-2 for 2013 reported the following information.


Wages $43,000 Federal tax W/H $3000


Soc Sec Wages $43,000 Soc Sec Tax W/H $2666


Medicare Wages $43,000 Medicare Tax W/H $ 623.5


Rosanna’s employer does not provide any retirement plan for its employees.


Jose and Rosanna received interest income from BankOne in the amount of $3,500 and qualified dividend income on Microserf stock of 130(reported in boxes 1a and 1b on form1099-DIV). On November 10, they sold 1,000 shares of Dotcom stock for $925. They had purchased the Dotcom stock last year on October 2 for $4,900. On September 12, they sold 800 shares of Microserf stock for $3800. They had purchased the Microserf stock three years ago on April 22 for $3,050. The proceeds from these sales were reported on the Form 1099-B they received from their broker but basis was not reported.


Rosanna received 45 in jury duty pay in May.


The Martinez family has medical insurance that they purchase through the cafeteria plan offered by Jose’s employer (on pre-tax basis). The annual cost of this medical insurance for the entire family was $3600. Martinez family also paid $12,300 for qualified medical expenses for which they received no insurance reimbursements.


The Martinez family paid $9400 in interest on their home mortgage (which overnight Mortgage Company reported to them on Form 1098). The Martinez family also owns a vacation home in Breckenridge, Colorado, for which they paid $4100 of mortgage interest (This is qualified mortgage interest for a second home.) Other interest paid by Jose and Rosanna includes $1100 for a loan on their personal automobile and $400 on credit cards.


The Martinez family paid real estate taxes on their principal residence in the amount of $3500. An additional $2000 of real estate taxes was paid on their vacation home. Total sales taxes paid are $3200.


The vacation home in Breckneridge was rented out for 120 days during the year for which they received $10000 in rental income. Jose and Rosanna made significant decisions such as approving new tenants while a local management company handled the day-to-day needs. The Martinez family used it for 30 days for personal vacation use during the year. Expenses for this vacation home (other than the interest and taxes mentioned above) include:?700 for real estate management fees paid to a local agent who handles the rental of the property, insurance expense $2,200, repairs expense $500, and utilities expense $1,800. They purchased this home in 2004 and use the IRS formula for allocating interest and taxes. Depreciation expense for the rental portion of the home is $400.


Rosanna was a 20 percent shareholder in Simply Smart Corporation (TIN is 597654321) an S corporation. She materially participated in the activities of this corporation. She received a Schedule K-1 reporting $722 in ordinary business income on line 1.


The Martinez family has the necessary documentation for the following contributions made to qualified charitable organizations:


1. Cash of $2,500 given to their church.


2. Ford stock purchased 6 years ago on March 16, at a cost of $750 was given to United Way (a qualified charitable organization) on February 22 when it had a fair market value of $1,650 (the average stock price on the date of donation).


Jose had the following employment-related expenses that were not reimbursed by his employer:


1. Jose drove his Volvo (which he purchased four years ago on November 18) a total of 11,000 miles during the year. He drove 4,700 miles while conducting business during the first half of the year. In July, the firm purchased several hybrid autos that the architects were then required to use for all business travel rather than their personal autos. These autos were kept at the firm’s offices. Jose used his personal auto for the three mile commute to his office, a total of 1,500 miles for the entire year.


2. Jose attended the AIA Architects conference in Salt Lake City. He paid a registration fee of $200 and incurred costs of $400 for transportation, $ 325 for lodging, and $160 for meals. He was not reimbursed for these expenses.


Jose and Rosanna incurred the following miscellaneous expenditures during the year:


1. Fees for preparation of last year’s tax return of $220 that were paid in April of the current year.


2. Safe deposit box rental fee of $50 (for storage of investment securities).


Jose and Rosanna received a Form 1098-T reporting the $8,000 they paid for Carmen’s tuition at the local university where she is a sophomore. The moly box checked on Form 1098-T indicated she was at least a half-time student. They also paid $750 for textbooks she needed for her classes. They want to maximize any tax benefits they can receive from the expenses they paid for Carmen’s education.


In October, Rosanna quit her job with the bank and began a consulting business. Then business code is 541990. She is operating the business under her own name and rented a small office at 1234 Coral Way, Coral Gables, FL33146. Since Rosanna began her business so late in the year, her consulting income was only $7,000. She incurred the following expenses: $475 supplies, $210 telephone, $2,200 office rent, and $325 advertising. In addition, Rosanna drove her two-year old Lexus on business 750 miles during this time to visit prospective and current clients. This car was also driven 7,000 miles this year for personal use.


Rosanna contributed $2,000 to a traditional individual retirement account on December 5. This is the first time she has contributed to an IRA.


Other information: Both Jose and Rosanna want $3 to go to the Presidential Election Campaign. Jose was born on April 1, 1975; Rosanna was born April 1, 1976.





a. Based on the information presented above, prepare a Form1040 (married filing jointly) and any required related forms and schedules for the Martinezes for 2013 using the forms available on IRS Web site at www. Irs. gov.


b. What will be different for tax year 2014


Paper#38144 | Written in 12-Dec-2015

Price : $30