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Income Tax Return Assignment-Albert and Jenny Cunningham (both 42 years old) are married and have 2 children.

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Question;Income;Tax Return Assignment;Spring;2014;You have your own CPA tax;practice and you are greeted with new clients;Albert and Jenny Cunningham and their two children. You meet with them and they give you the;information shown below. They would like;you to prepare their tax return for 2013.;They would like to file married filing jointly.;NOTE: Reference to the ?current tax year? below for;the taxpayers, Albert and Jenny, it is for the calendar year 2013.;Albert and Jenny Cunningham;(both 42 years old) are married and have 2 children. Their son, Michael is 8 and their daughter;Ashley, is 3. They live at 151 32nd;Avenue Denver, CO 80222.;The following table;summarizes the birthdates, etc. for the family members;Social;Security Number;Date;of Birth;Albert;523-33-3456;May;12;Jenny;454-66-1654;March;15;Michael;523-45-7890;September;16;Ashley;523-50-6423;November;3;Jenny sells cosmetics for Maxim;Company. Albert is Vice Principal at the local high school and he works;independently as a repair/handyman. Their income from their full time jobs is;as follows;Salary;Federal Tax Withheld;State Tax Withheld;Jenny;$85,000;$10,500;$5,400;Albert;$45,000;$6,100;$3,150;NOTE: the above income is before considering the;following items;1. Maxim 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. Jenny selects the max of 10% of her salary and;chooses dental insurance, $40,000 in;group term life insurance, disability insurance, and company-provided day care.;The total cost to Maxim of those benefits is $6,600. Jenny takes the remaining benefits of $1,900;to which she is entitled in cash.;2. Because Maxim does not;have an employee pension plan, Albert and Jenny each contribute $5,500 to their;individual retirement accounts.;3. The school district gives Albert;medical insurance and group term life insurance equal to 100% of his annual;salary. He pays an additional $125 a;month to cover Jenny and the children under his medical plan and this is;deducted after tax from his salary.;4. The school district also;has a qualified contributory pension plan to which it contributes 5% of Albert?s;annual salary. Albert is required to;contribute 3% of his salary. Albert 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. Albert and Jenny purchase;$100,000 in whole life insurance on each other, along with a disability insurance;policy for Albert. The checkbook analysis table that follows shows the costs;that they paid for each of these policies.;Jenny's Job requires her;to travel throughout her five-state region. Maxim has an accountable;reimbursement plan from which Jenny receives $8,500 for the following expenses;Airplane transportation and;auto expenses;$4,330;Lodging;2,350;Incidentals;400;Note: She has used her;Honda Civic in her work for Maxim Company. During 2013, she properly;documented 6,000 business miles of which she was reimbursed in the above;amount list. Jenny elects to use the standard mileage method to calculate her;car expenses. She spent $45 on tolls and $135 on parking related to her;cosmetic sales.;In May,Jenny and Albert go;to the Gulf Stream Casino with Jenny's client Beth and her husband. After;wagering $320 without winning, Jenny wins $2,600 on the blackjack table. The;casino withholds $780 for federal income tax and $260 for Colorado income;taxes.;Albert hires his students;to help him in his summer repair/handyman business. This year, he is able to;hire 7 students. Albert shuttles between;sites, supervising the job talking to prospective clients and helping. He;treats the students as independent contractors. His business generates the;following income and expenses.;Revenues;$112,000;Supplies;33,100;Other material;6,100;Insurance;5,100;Payments to student help;48,400;During the year, Albert;and Jenny receive the following portfolio income;Interest on savings accounts**;$2,030;Interest on U.S. Treasury;bills;400;Qualified Cash Dividends on;Johnson Stock;1,750;Interest on city of Denver;bonds;600;Interest on New Hampshire;government bonds;400;**Note: $180 of the $2,030 of interest earned from;savings was from Albert?s Business Savings Account that he maintained for his;repair/handyman business.;Albert and Jenny own 3,000;shares of Sampson Corporation stock that they purchased ten years ago on June;30, for $37,000. Early in the current;tax year on February 1, they sell all the shares for $16,800. Note;The basis of the stock was not reported to the IRS.;Albert and Jenny also sell;100 shares of Johnson Corporation stock for $6,200 on December 1. They purchased the stock six months earlier;on June 1 for $2,700. The cost basis;upon the sale was reported to the IRS. The couple also sells 250 shares of Mason Corporation for $4,100 on;October 23, cost basis $11,350 (purchased five years earlier on July 13). The cost basis upon sale was not reported to;the IRS.;Albert and Jenny own a 4%;investment interest in a limited partnership, BDK Partnership, Federal ID;84-5313212. 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 vacation home in Buena Vista, Colorado;they rent it to vacationers for 80 days. Information pertaining to the summer;vacation home 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;7,000;One night, while returning;home from school, Albert is involved in an automobile accident and is;hospitalized for 7 days. He incurs $14,000 in medical expenses. His;employer-provided insurance policy reimburses him $11,800 of the costs. In;addition, his disability insurance policy pays him $3,200 for time he misses;from school.;The car is totally;destroyed. It was purchased in ten years ago for $19,500 and Albert finds a;similar car selling for $11,000. The insurance company reimburses him $7,500.;An analysis of Jenny and Albert's;checkbook reveals the following payments in the current tax year;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;Mile High Church;750;Vanderbilt University;520;Auto registration on;automobiles ($130 of which is a license fee);390;Tax preparation fee;375;Automobile insurance;$1,700;Homeowners insurance on;their primary residence;520;Life Insurance;850;Disability insurance;480;Country club dues;3,600;Health club dues;1,100;During the current tax;year pertaining to their principal residence, Albert and Jenny take out a $41,000;home equity loan that they use to renovate the home. Interest paid on this loan;totals $1,950 during the year. Albert and Jenny purchased their current home a;few years ago by paying $25,000 down and signing a $151,000 mortgage note;secured by the home. The home is worth $230,000, and the balance on the original;mortgage is $140,000. They pay interest on their home mortgage of $14,700;during the year. They also pay $310 in interest on their personal credit cards;and $1,720 in property taxes on their home during 2013.;Required;a. Compute Albert and Jenny's;taxable income for current tax year, the tax on this income and the amount of;refund or additional tax due. You are;required to go to the irs.gov website and download the appropriate tax forms;and schedules that you believe are needed and complete these forms. The following are some suggested forms and;Schedules but you may need additional forms/schedules depending on how you;treat each item referred to above: Form;1040, Schedule A, Schedule B, Schedule C, Schedule D, Schedule E, Form 2106;Form 8949, and Form 8606.;b. You should also provide a tax;return memorandum showing the following items;a summary worksheet of the above calculations of income tax and the;refund or additional tax due, and a supplemental discussion of the treatment of;each item given in the facts of the assignment. If an item does not affect their taxable;income calculation, you should discuss why it does not enter into the;computation. Please address this tax;memorandum to your clients: Albert and;Jenny Cunningham.

 

Paper#43467 | Written in 18-Jul-2015

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