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ACC INDIVIDUAL TAX RETURN PROBLEM - Paige Turners

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Question;INDIVIDUAL TAX RETURN PROBLEMUse the following information to complete Paige Turners 2012 federal income tax return. If information is missing, use reasonable assumptions to fill in the gaps.Any required forms, schedules, and instructions can be found at the IRS Web site (www.irs.gov).The instructions can be helpful in completing the forms.Facts:1. Paige Turner is single and has two children from her previous marriage. Ali lives with Paige,and Paige provides more than half of her support. Leif lives with his father, Will (Lief lived withWill for all of 2012). Will provides more than half of Leifs support. Paige pays alimony of$400 per month to Will. The payments are to continue until Leif reaches age 18, when they willbe reduced to $150. Paige provides you with the following additional information:She uses the cash method of accounting and a calendar year for reporting.She wishes to contribute to the presidential election campaign.Paige lives at 523 Essex Street, Bangor, ME 04401.Paiges birthday is May 31, 1974.Alis birthday is October 5, 2003.Leifs birthday is December 1, 2001.Paiges Social Security number is 007-16-4727.Alis Social Security number is 005-61-7232.Leifs Social Security number is 004-23-3419.Wills Social Security number is 006-45-6333.She does not have any foreign bank accounts or trusts.2. Paige is employed as a nuclear engineer with Atom Systems Consultants, Inc.(ASCI). ASCIs federal employer identification number is 79-1234466. Paigespay stubs indicate that she had $7,230 withheld in federal taxes, $4,987 in statetaxes, $4,495 in Social Security taxes, and $1,051 in Medicare taxes. ASCI hasan extensive fringe benefits program for its employees.3. Paige earned salary of $70,000 (before subtracting her 401(k) and flexiblespending plan contributions). She contributed $7,000 to her 401(k) account, and shecontributed $3,600 to her flexible spending account.4. Taking advantage of ASCIs educational assistance program, during the fallPaige enrolled in two graduate engineering classes at a local college. ASCI paidher tuition, fees, and other course-related costs of $2,300.5. Paige received free parking in the companys security garage that would normallycost $200 per month.6. On January 15, 2012, Paiges father died. From her fathers estate, she receivedstock valued at $30,000 (his basis was $12,000) and her fathers house valued at$90,000 (his basis in the house was $55,000).7. Paige owns several other investments and in February 2013 received a statement from herbrokerage firm reporting the interest and dividends earned on the investments for 2012. (Seepage 3.)8. In addition to the investments discussed above, Paige owns 1,000 shares of Grubstake Mining& Development common stock. Grubstake is organized as an S corporation and has 100,000shares outstanding (S corp. ID number 45-4567890). Grubstake reported taxable income of$200,000 and paid a distribution of $1.00 per share during the current year. Paige tells you thatGrubstake typically does not send out its K-1 reports until late April. However, its preliminaryreport has been consistent with the K- 1 for many years. (See page 3.) Paige does not materiallyparticipate in Grubstakes activities.9. Paige slipped on a wet spot in front of a computer store last July. She broke her ankle and wasunable to work for two weeks. She incurred $1,300 in medical costs, all of which were paid bythe owner of the store. The store also gave her $1,000 for pain and suffering resulting from theinjury. ASCI continued to pay her salary during the two weeks she missed because of theaccident. ASCIs plan also paid her $1,200 in disability pay for the time she was unable to work.Under this plan ASCI pays the premiums for the disability insurance as a taxable fringe benefit.Forms 1099 and 1098This is important tax information and is being furnished to the Internal Revenue Service.1099-Div Dividends & DistributionsEntityDescriptionAmountGeneral DynamicsGross ordinary & qualified dividends$3001099-Int InterestEntityDescriptionAmountNew Jersey Economic Development bonds Gross interest$300IBM bondsGross interest700State of Nebraska bondsGross interest2001098-Mortgage Interest StatementEntityDescriptionAmountSunbelt Credit UnionMortgage interest$7,100Northeast BankHome-equity loan interest435Grubstake Mining & Development: preliminary report (preliminary K-1) to Paige for the 2012tax yearDistribution to shareholder$1,000Ordinary income (1% of $200,000)$2,00010. Paige received a Form 1099-B from her broker for the sale of the following securities during2012. The adjusted basis amounts were reported to the IRS.Sale DatePurchase DateSales PriceHerBasisNebraska state bonds03/14/1210/22/06$2,300$1,890$8,500$9,760Cassill Corp (500 shares)10/20/1202/19/1111. In addition to the taxes withheld from her salary, she also made timely estimated federal taxpayments of $175 per quarter. Paige would like to receive a refund for any overpayment.12. Paige found a renter for her fathers house on February 1, 2012. The monthly rent is $400,and the lease agreement is for one year. The lease requires the tenant to pay the first and lastmonths rent and a $400 security deposit. The security deposit is to be returned at the end of thelease if the property is in good condition. On February 1 2012, Paige received $1,200 from thetenant per the terms of the lease agreement. In November, the plumbing froze and several pipesburst. The tenant had the repairs made and paid the $300 bill. In December, he reduced his rentalpayment to $100 to compensate for the plumbing repairs. Paige provides you with the followingadditional information for the rental in 2012.Property taxes$770Other maintenance expenses285Insurance expense495Management fee350Depreciation2,760The rental property is located at 35 Harvest Street, Orono, ME 04473. Local practice is toallocate 12 percent of the fair market value of the property to the land. (See #6.) Paige makes alldecisions with respect to the property.13. Paige paid $2,050 in real estate taxes on her principal residence. The real estate tax is used topay for town schools and other municipal services.14. Paige drives a 2011 Acura TL. Her car registration fee (based on the car year) is $50 andcovers the period 1/1/12 through 12/31/12. In addition, she paid $280 in property tax to the statebased on the book value of the car.15. In addition to the medical costs presented in #9, Paige incurred the following unreimbursedmedical costs:Dentist$ 310Doctor390Prescription drugs215Over-the-counter drugs140Optometrist125Emergency room charges440LASIK eye surgeryChiropractor2,00026516. On March 1, Paige took advantage of low interest rates and refinanced her $75,000 homemortgage with her original lender. The new home loan is for 15 years. She paid $215 in closingcosts and $1,500 in discount points (prepaid interest) to obtain the loan. The house is worth$155,000, and Paiges basis in the house is $90,000. As part of the refinancing arrangement, shealso obtained a $10,000 home-equity loan. She used the proceeds from the home-equity loan toreduce the balance due on her credit cards. Paige received several Form 1098 statements fromher bank for interest paid by her in 2012. Details appear below. (See also on page 3.)Primary home mortgage$7,100Home-equity loan435Credit cards498Car loan39017. On May 14, 2012, Paige contributed clothing to the Salvation Army. The original cost of theclothing was $740. She has substantiation valuing the donation at $360. The Salvation Army islocated at 350 Stone Ridge Road, Bangor, ME 04401. In addition, she made the following cashcontributions and received a statement from each of the following organizations acknowledgingher contribution:Larkin College$850United Way125First Methodist Church790Amos House (homeless shelter)200Local Chamber of Commerce10018. On April 1, 2012, Paiges house was robbed. She apparently interrupted the burglar becauseall thats missing is an antique brooch she inherited from her grandmother (June 12, 2004) and$300 in cash. Unfortunately, she didnt have a separate rider on her insurance policy covering thejewelry. Therefore, the insurance company reimbursed her only $500 for the brooch. Her basis inthe brooch was $6,000, and its fair market value was $7,500. Her insurance policy also limits to$100 the amount of cash that can be claimed in a theft.19. During 2012, Paige paid a local CPA $350 to prepare her 2011 tax return.

 

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