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Zeke and Zena Zastera tax problem




Question;BC442;Tax Accounting;Tax return information;Zeke and Zena Zastera;Tax;Return 2: Note: The IRS Extension;form does not extend the due date of the assignment. Note for purposes of this return, you may work;with another student. (Email me the;names of the person you are working with.);You each must complete the return using the software, and provide any;associated workpapers.;Following is information that you will need;to complete the federal income tax return for Zena and Zeke Zastera.;Facts;Zeke and Zena Zastera are married and have 3 children.;Following are the basic facts related to them;Name;Social Security Number;DOB;Zeke N. Zastera;490-15-8534;08-20-1970;Husband;Zena A. Zastera;504-68-9246;09-10-1973;Wife;Ashley Zastera;853-65-9876;02-26-1994;Daughter;Brittany Zastera;850-63-6667;10-28-1998;Daughter;Matthew Zastera;851-96-4456;02-15-2003;Son;Their address is;186 Valley Drive;Marion, IA 52302;The mortgage interest and property taxes that they paid on their;personal residence can be found on the attached Form 1098.Zeke works at a local car dealership as a salesperson. His W-2 is attached. Interest received by Zeke and Zena are denoted on the attached;1099s.Matthew was enrolled in before and after school day care that;is provided by the YWCA (EIN 42-9685321) located at 123 1st Ave SE, Cedar;Rapids, 52401.;Zeke and Zena paid a total of $3,000 for the day care.Ashley attended Mount Mercy University on a full-time basis in;2013. The Zasteras paid $10,000 in tuition, $7,000 in room and board and;$1,200 for books for Ashley?s college expenses.Zeke and Zena sold 200 shares of Proctor & Gamble stock for;$39.50 per share on 06-01-2013. At the time of the sale they paid a;commission to their stock broker of $125. They bought the stock on 2-8-2007;for $18.00 per share.Zeke had an extensive collection of baseball cards acquired;between 1975 and 1979 for an estimated cost of $738. (Even though the cost was;unsubstantiated, given the number of baseball cards and the sales price of;a packet of cards in the 1970s, you deem the estimate to be reasonable and;believe you have a position to claim this amount as basis based on the Cohan,8 AFTR 10552 (2nd;Cir., 1930). On May 28, 2013, Zeke;exchanged his baseball cards for an installed hot tub and season tickets;to the Iowa Cubs games. The value;of the installed hot tub and the season tickets were $3,750 and $1,000;respectively. On July 15, 2013, Zeke sold all his shares (315.27) of Columbia;Acorn Fund for $6,800. He originally;purchased the 267.27 shares of the Acorn fund on 5/1/2010 for $3,000. He reinvested the dividends and capital;gains and received. The following are;the combined dividend and capital gain distributions in the years since;purchase. Year Distribution Shares Received by Reinvesting;2010 $120 12.00;shares;2011 $180 15.00;shares;2012 $420 21.00;shares;Finally, the Zasteras;sold 1,000 shares of Donkong, a Qualified Small Business Stock, on July 5, 2013;for $250,000. They acquired the stock;for $20,000 on January 14, 2006. The Zastera?s;were 10% owners of the stock and were the first original owners to sell. (Hint;See 2013 IRS Publication 550 page 66;on how to compute and report this gain).;Zena owns 10% of a partnership which owns and operates Mexican;Restaurants in Davenport, Iowa. The partnership K-1 is attached.;Zeke and Zena made the following charitable contributions, in;2013:$2000 to St. Jude Catholic Church$150 to Mount Mercy University$75 to IPTV. $50 was given to a destitute neighbor to buy some shoes for a;job interview.Zeke and Zena had the following medical expenses that weren?t;covered by health insurance.Prescription drugs of $600.Co-Payments and Deductibles (Zeke $1,750, Zena $1,250)Veterinary bill of $70 for office visit, lab report and cat;scan of their now deceased cat, Stuffy.Zena owns and operates a combination of CPA firm and mortuary;called Deep ZZZ. While a seemingly;unusual combination, the businesses create some cross-demand. For instance, when clients see their tax;bill, they sometimes expire, others do estate planning and funeral;planning at the same time, still others select Zena to be the executor of;their estate. Deep ZZZ (EIN 86-6001132) uses the accrual basis of accounting.Deep ZZZ operates from the mortuary Building;at 123 Funeral Home Lane, Cedar;Rapids, Iowa 52401.;Receipts were $168,250, including $3,250 on sales taxes of the;goods sold (inventory consists entirely of caskets, the sales of which;totaled $65,000 excluding the sales tax assessed at 5%). Inventory at the end of last year was $12,000. A physical count of inventory on hand;at the end of this year showed inventory to be $15,000. Inventory is valued at cost.Additional outlays from the Deep ZZZ?s check register are as;follows;Purchases of Caskets;35,000;Sales Tax;3,250;Hearse Auto insurance;850;Hearse Gasoline;1,200;Vehicle registration;150;Maintenance, Hearse;889;Software license fee;2,250;Tax Return supplies;4,000;Office Supplies;250;Wages;28,000;FICA tax;1,736;Medicare tax;406;Utilities;1,436;Telephone;450;Insurance;6,000;Legal fees;1,500;Bank fees;35;Bad Debt Expense5;1,200;Property Taxes Paid;3,500;Business loan ? principal;5,000;Business loan ? interest;1,200;Donations1;500;Lobbying2;1,000;Meals and Entertainment3;1,800;Business Investigation4;2,200;1Cash;donations of $500 were made during the year for various causes included;contributions of $200 to the Boy Scouts, $175 to the Girl Scouts and $125 for;various fundraisers for the local school.;2 Zena;went to Des Moines for 3 days to voice her opinion to state legislators;regarding the state sales tax.;Legislators were;attempting to include accounting services as a taxable service.;3 Zena;incurred $1,800 in meals and entertainment expense. $1,200 was incurred in taking potential;clients;to lunch or dinner;to discuss business. $600 was spent in;membership dues to the Airport National golf course;in which Zena;joined to try to drum up business. Her;poor golfing and duck-hook shots wounded;people by hitting;them with golf balls, but did not kill anyone.;4 Zena;incurred $2,200 in business investigation costs. Zena was contemplating getting into the;catering business so that she could bid on catering the meals often held;after the funeral.;Ultimately, Zena;decided not to get into the catering business.;5 DEEP;ZZZ accrues bad debt expense based on the percentage of sales method. On January 1, 2013;the balance in the;allowance for doubtful accounts was $1,000.;During 2013, $1,200 was accrued and $1,000;of actual writeoffs;occurred, leaving $1,200 as the allowance for doubtful accounts balance on;12/31/2013.;GAAP Depreciation was $5,500.;For Tax purposes, Deep ZZZ computes depreciation using MACRS;percentages (not the optional straight line method.) Written mileage logs for the Hearse;indicate that it was driven 1,200 business miles. Deep ZZZ deducts the actual costs for;the Hearse. The Hearse was used only;for business purposes. (Hearses are excluded from;the Luxury auto limitations.);Deep ZZZ did not elect to use bonus depreciation or to take ?179;expense in 2013 or any prior year.;Following is the depreciation schedule for Deep ZZZ.;Asset;Date purchased;Cost;Prior GDS Depreciation;GDS Life;Mortuary Building Land;7/1/2006;25,000;0;N.A.;Mortuary Building;7/1/2006;$125,000;$20,699;39;Hearse;1/12/2010;$25,684;18,287;5;Display Racks;9/28/2009;$9,759;$6,710;7;Computer;5/19/2013;3,600;0;5;Backhoe;10/12/2008;12,260;$9,183;7;Computer;11/16/2008;$3,750;$3,391;5;Office Furniture;1/9/2006;2,250;$2,150;7;Note: remember mid quarter depreciation and that you have to calculate;depreciation for the alternative minimum tax differently that regular tax. Assume;that no disposals of property acquired during tax years 2006-2012 have occurred;prior to 2013.;On 9/30/2013, Deep ZZZ sold the old computer purchased on;11/16/08 for $400. Zena and Zeke paid $5,600 for a health insurance plan;established under Deep ZZZ to provide health insurance for the Zasteras;that was offered to small businesses through a local small business;association. This amount was paid;with after-tax dollars. (Neither;Zeke nor Zena were eligible for health insurance at their place of;employment.) In 2013, Zena made her;first contribution to a traditional IRA totaling $4,000. Zena is not eligible to participate in a;qualified retirement plan at work.The Zasteras have two vehicles for which they paid Iowa license plate;fees. $350 was paid for their 2012;Jeep Grand Cherokee which weighs 4,500 lbs. and a $120 for their 2006 BMW;Z4 which weighs 2,500 lbs.Zena and Zeke made 4 federal estimated tax payments of $10,500;each on their due dates, except the 4th quarter payment was;made on December 31, 2013. The;federal income taxes for 2012 totaled $8,500. They had to pay an additional $350 of;Iowa income tax when they filed their 2012 return on April 15, 2013 and;they received a refund of $1,250 on their federal 2012 tax return for;which they received an Iowa tax benefit. The Zasteras made 4 state of Iowa;estimated tax payments of $2,050 each on the respective due dates except;the fourth payment which was made on December 31, 2013. In 2012, Zeke owed $2,250 of Iowa income;tax while Zena owed $1,500.;Zena and Zeke own a 4-plex on 147 Poplar Street, Marion;that is fully rented. They bought;the 4-plex on 5-8-10 for $225,000 with $20,000 of the cost allocated to;the land. Following is a breakdown;of the 4-plex purchased and accumulated tax depreciation.;Asset;Cost;Prior GDS Depreciation;GDS life;Land;$20,000;N/A;N/A;Building;$205,000;19,567;27.5;The following is;information regarding the income and expenses of the 4-plex.;Income;Rent;$30,000;Washer & dryer;2,400;Expenses;Utilities;5,500;Property tax;4,500;Repairs & maintenance;1,200;Insurance;450;Snow removal;500;Mortgage loan ? principal;3,800;Mortgage loan ? interest;11,100;Required;Prepare the federal income and state income;tax return for Zeke and Zena using Tax Act tax return preparation software. Prepare the alternative minimum tax schedule;6251 for both the federal and Iowa returns.;Both Zeke and Zena wish to contribute $3 to the Presidential Election;Campaign.;In;addition, to completing the returns, prepare a book to tax reconciliation. This reconciles the book income of Deep ZZZ;with the taxable income (please do in EXCEL or Word and attach it to your;return).;Also, answer the following questions. (Hint;By clicking on the forms icon in TaxAct, you have access to various;calculation worksheets that provide the answer to the ?limitation? questions;below. I want you to do the limitation;calculation yourself, but you can use the worksheet as a guide to assist you in;the explanation).;1. What is the benefit of making the 4th;quarter estimate payments in 2013 rather than 2014?;2. Please show a mathematical calculation for income tax line, 1040 line;44.;3. Was Zena?s IRA contribution deductible? (why;or why not)?;4. Verify the calculation of the child tax;credit and the child and dependent care credit.;Iowa Tax return;On the Iowa tax return, joint filers complete the;same return, but their incomes are taxed separately. Therefore, it is important that you pay;attention to whom the various investment income belongs. Some of the income belongs to Zena, some;belongs to Zeke, and some is joint income.;By coding the investment income correctly when entering them on the;federal return, they will flow correctly to the Iowa return.;Other items to consider when doing the Iowa return.;?;It is necessary to designate;the amount of the federal 2012 refund that accrues to Zeke and Zena. This is based on their 2012 income, which;indicates 60% of the amount goes to Zeke and 40% goes to Zena.;?;They reside in the Linn-Mar School district.;?;U.S. Government interest is tax;free on state tax returns.;?;Most municipal interest is;taxable in Iowa, however the Zasteras purposely purchased Iowa municipal bonds;that are tax exempt in Iowa.;?;Both Zeke and Zena want to;contribute the $1.50 to the Republican Party on their Iowa return.;Instructions for the Iowa return can be found at the Iowa;Department of Revenue website;;Your return should include;Form 1040;Schedule A;Schedule B;Schedule C;Line 13 = 9,149, Line 31 = 68,399 (Don?t be concerned about $1 or;$2 differences);Schedule D;Schedule E;Schedule SE;Form 4797;Form;8606;Form 6251;Form 4562 (Deep Z);Form 4562 (4-Plex) Line 22 = 7,455;Form;2441;IA Form 1040IA;IA Schedule A;IA Schedule B


Paper#38477 | Written in 18-Jul-2015

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