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ACC - Paul and Judy (Tax Problem)




Question;C-10Appendix C7. Judy is required by Xavier University to visit several high schools in the Cincinnatiarea to evaluate Xavier University students who are doing their practice teaching.However, she is not reimbursed for the expenses she incurs in doing this. Duringthe spring semester (January through April 2012), she drove her personal automobile 6,800 miles in fulfilling this obligation. Judy drove an additional 6,700 personal miles during 2012. She has been using the car since June 30, 2011. Judy usesthe standard mileage method to calculate her car expenses.8. Paul and Judy have given you a file c ontaining the following receipts for expenditures during the year:Prescription medicine and drugs (net of insurance reimbursement)Doctor and hospital bills (net of insurance reimbursement)Penalty for underpayment of last year's state income taxReal estate taxes on personal residenceInterest on home mortgage (paid to Home State Savings & Loan)Interest on credit cards (consumer purchases)Cash c ontribution to St. Matthew's churchPayroll deductions for Judy's contributions to the United WayProfessional dues (Judy)Professional subscriptions (Judy)Fee for preparation of 2011 tax r eturn paid April 12, 2012$ 3762,468154,7628,2505953,0801503252455009. The Vances filed their 2011 federal, state, and local returns on April 12, 2012.They paid the following additional 2011 taxes with their returns: federal incometaxes of $630, state income taxes of $250, and city income taxes of $75.'10. The Vances made timely estimated federal income tax payments of $1,500 eachquarter during 2012. They also made estimated state income tax p ayments of$300 each quarter and estimated city income tax payments of $160 each quarter.The Vances made all fourth-quarter payments on December 31, 2012. They wouldlike to receive a refund for any overpayments.INDIVIDUAL TAX RETURN PROBLEM 6Required:Use the following information to complete Paige Turner's 2012 federal income tax return. If i nformation is missing, use reasonable assumptions to fill in the gaps.Any required forms, schedules, and i nstructions can be f ound at the IRSWeb site ( The i nstructions can be h elpful in completingthe forms.Facts:1. Paige Turner is single and has two children from her previous marriage. Alilives with Paige, and Paige provides more than half of her support. Leif liveswith his father, Will (Lief lived with Will for all of 2012). Will provides morethan half of Leif's support. Paige pays "alimony" of $400 per m onth to Will.The payments are to continue until Leif reaches age 18, when they will be 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.Appendix CPaige's birthday is May 31, 1974.All's birthday is October 5, 2003.Leif's birthday is December 1, 2001.Paige's Social Security number is 007-16-4727.Ali's Social Security number is 005-61-7232.Leif's Social Security number is 004-23-3419.Will's 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). ASCI's federal employer identification number is 79-1234466. Paige'spay 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 she c ontributed $3,600 to her flexible spending account.4. ASCI paid $397 of whole life insurance premiums to cover Paige's personalwhole life insurance policy. ASCI also paid health club dues of $900 to anearby health club on Paige's behalf.5. Taking advantage of ASCI's educational assistance program, during the fallPaige enrolled in two graduate engineering classes at a local college. ASCI paidher t uition, fees, and other course-related costs of $2,300.6. Paige received free parking in the company's security garage that would normally cost $200 per month.7. Paige manages the safety program for ASCI. In recognition of hersuperior handling of three potential crises during the year, Paige wasawarded the Employee Safety Award on December 15. The cash awardwas $500.8. On January 15, 2012, Paige's father died. From her father's estate, she receivedstock valued at $30,000 (his basis was $12,000) and her father's house valued at$90,000 (his basis in the house was $55,000).9. Paige owns several other investments and in February 2013 received a statementfrom her brokerage firm reporting the interest and dividends earned on theinvestments for 2012. (See Exhibit A.)10. In addition to the investments discussed above, Paige owns 1,000 shares ofGrubstake Mining & Development common stock. Grubstake is organizedas an S corporation and has 100,000 shares outstanding (S corp. ID number45-4567890). G rubstake reported taxable income of $200,000 and paid adistribution of $1.00 per share during the current year. Paige tells you t hatGrubstake typically does not send out its K -l reports until late April. However, its p reliminary report has been consistent with the K -l for many years.(See E xhibit A.) Paige does not m aterially participate in Grubstake'sactivities.11. Paige slipped on a wet spot in front of a computer store last July. She broke herankle and was unable to work for two weeks. She incurred $1,300 in medicalcosts, all of which were paid by the owner of the store. The store also gave her$1,000 for pain and s uffering resulting from the injury. ASCI continued to payher salary during the two weeks she missed because of the accident. ASCI'splan 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 ataxable fringe b enefit.C-llC-12Appendix CEXHIBIT AForms 1099 and 1098This is important tax information and is being furnished to the Internal Revenue Service.1099-Div Dividends & DistributionsDescriptionEntityAmountGross qualified dividendsGeneral Dynamics$3001099-lnt InterestEntityDescriptionNew Jersey Economic Development bondsIBM bondsState of Nebraska bondsGross interestGross interestGross interestAmount$3007002001098-Mortgage Interest StatementDescriptionAmountMortgage interestHome-equity loan interest$7,100435EntitySunbelt Credit UnionNortheast BankGrubstake Mining & Development: preliminary report (preliminary K-l) to Paige for the 2012 tax yearDistribution to shareholderOrdinary income (1% of $200,000)$1,000$2,00012. Paige received a Form 1099-B from her broker for the sale of the following securities d uring 2012. The adjusted basis amounts were reported to the IRS.SecuritySaleDatePurchaseDateSalesPriceCommissionPaid on SaleNebraska state bondsCassill Corp (500 shares)03/14/1210/20/1210/22/0602/19/11$2,300$8,500$425$160HerBasis$1,890$9,76013. In addition to the taxes withheld from her salary, she also made timely estimated federal tax payments of $175 per q uarter and timely estimated state income tax payments of $150 for the first three quarters. The $150 f ourth-quarterstate payment was made on December 28, 2012. Paige would like to receive arefund for any overpayment.14. Because of her busy work schedule, Paige was u nable to provide her accountant with the tax documents necessary for filing her 2011 state and federalincome tax r eturns by the due date (April 17, 2012). In f iling her e xtensionon A pril 17, 2012, she made a federal tax p ayment of $750. Her r eturn waseventually filed on June 25, 2012. In August 2012, she received a f ederal refund of $180 and a state tax r efund of $60. Her itemized deductions for 2 011were $12,430.15. Paige f ound a r enter for her father's house on August 1. The m onthly rent is$400, and the lease agreement is for one year. The lease requires the t enant topay the first and last months' rent and a $400 security deposit. The s ecuritydeposit is to be r eturned at the end of the lease if the p roperty is in goodcondition. On August 1, Paige received $1,200 from the t enant per the t ermsof the lease agreement. In November, the p lumbing froze and several pipesburst. The tenant had the repairs made and paid the $300 bill. In December,he reduced his rental payment to $100 to compensate for the p lumbingAppendix Crepairs. Paige provides you with the following additional information for therental in 2012.Property taxesOther maintenance expensesInsurance expenseManagement feeDepreciation (to be computed)$770285495350?The rental property is located at 35 Harvest Street, Orono, ME 04473. Localpractice is to allocate 12 percent of the f air m arket value of the property to theland. (See #8.) Paige makes all decisions w ith respect to the property.16. Paige paid $2,050 in real estate taxes on her principal residence. The real estatetax is used to pay for town schools and other municipal services.17. Paige drives a 2011 Acura TL. Her car registration fee (based on the car year) is$50 and covers the period 1/1/12 through 12/31/12. In addition, she paid $280 inproperty tax to the state based on the book value of the car.18. In addition to the medical costs presented in #11, Paige incurred the followingunreimbursed medical costs:DentistDoctorPrescription drugsOver-the-counter drugsOptometristEmergency room chargesLASIK eye surgeryChiropractor$ 3103902151401254402,00026519. On March 1, Paige took advantage of low interest rates and refinanced her$75,000 home mortgage with her original lender. The new home loan is for15 years. She paid $215 in closing costs and $1,500 in discount points (prepaidinterest) to obtain the loan. The house is worth $155,000, and Paige's basis inthe house is $90,000. As part of the refinancing arrangement, she also obtaineda $10,000 home-equity loan. She used the proceeds from the home-equity loanto reduce the balance due on her credit cards. Paige received several Form 1098statements from her bank for interest paid by her in 2012. Details appear below.(See also Exhibit A on page C -ll.)Primary home mortgageHome-equity loanCredit cardsCar loan$7,10043549839020. On May 14, 2012, Paige contributed clothing to the Salvation Army. The original cost of the clothing was $740. She has substantiation valuing the donationat $360. The Salvation Army is located at 350 Stone Ridge Road, Bangor,ME 04401. In a ddition, she made the f ollowing cash contributions andreceived a statement from each of the following organizations acknowledgingher contribution:Larkin CollegeUnited WayFirst Methodist ChurchAmos House (homeless shelter)Local Chamber of Commerce$850125790200100C-13C-14Appendix C21. On A pril 1, 2012, Paige's house was robbed. She a pparently interruptedthe burglar because all that's missing is an a ntique brooch she inheritedfrom her g randmother (June 12, 2004) and $300 in cash. Unfortunately, shedidn't have a separate rider on her insurance policy covering the jewelry.Therefore, the insurance company reimbursed her o nly $500 for the brooch.Her basis in the brooch was $6,000, and its fair m arket value was $7,500.Her insurance policy also limits to $100 the a mount of cash t hat can beclaimed in a t heft.22. Paige sells real estate in the evening and on weekends. She r uns her b usinessfrom a r ental office she shares w ith several other realtors (692 River RoadBangor, ME 04401). The name of her business is T urner Real Estate andthe f ederal i dentification number is 05-8799561. Her business code is 531210.Paige has been operating in a business-like way since 2002 and has alwaysshown a p rofit. She had the f ollowing income and expenses from herbusiness:Commissions earnedExpenses:AdvertisingTelephoneReal estate licenseRentUtilities$21,2502,200951306,000600She has used her Acura TL in her business since July 1, 2012. During 2012,she properly documented 6,000 business miles (1,000 miles each month). Thetotal mileage on her car (i.e., business- and personal-use miles) during the yearwas 15,000 miles (including 200 miles commuting to and from the real estateoffice). In 2012, Paige elects to use the standard mileage method to calculateher car expenses. She spent $45 on tolls and $135 on p arking related to thereal estate business.23. Paige's company has an accountable expense reimbursement plan for employeesfrom which Paige receives $12,000 for the following expenses:AirfareHotelMealsCar rentalsEntertainmentIncidentals$4,7003,4002,00060090040024. D uring 2012, Paige also paid $295 for business publications other thanthose paid for by her employer and $325 for a local CPA to prepare her 2011tax return.CORPORATE TAX RETURN PROBLEM 1Required:Complete Alvin's Music Inc.'s (AMI) 2012 Form 1120, Schedule D, andSchedule G (if applicable) using the information provided below.Neither Form 4562 for depreciation nor Form 4797 for the sale of the equipmentis required. Include the amount of tax depreciation and the tax gain on the


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