C-10
Appendix C
7. Judy is required by Xavier University to visit several high schools in the Cincinnati
area to evaluate Xavier University students who are doing their practice teaching.
However, she is not reimbursed for the expenses she incurs in doing this. During
the 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 uses
the 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 tax
Real estate taxes on personal residence
Interest on home mortgage (paid to Home State Savings & Loan)
Interest on credit cards (consumer purchases)
Cash c ontribution to St. Matthew’s church
Payroll deductions for Judy’s contributions to the United Way
Professional dues (Judy)
Professional subscriptions (Judy)
Fee for preparation of 2011 tax r eturn paid April 12, 2012
$ 376
2,468
15
4,762
8,250
595
3,080
150
325
245
500
9. 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 income
taxes 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 each
quarter 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 would
like to receive a refund for any overpayments.
INDIVIDUAL TAX RETURN PROBLEM 6
Required:
• Use the following i nformation 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 IRS
Web site (www.irs.gov). The i nstructions can be h elpful 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 with Will for all of 2012). Will provides more
than 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 C
•
•
•
•
•
•
•
•
Paige’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’s
pay stubs indicate that she had $7,230 withheld in federal taxes, $4,987 in state
taxes, $4,495 in Social Security taxes, and $1,051 in Medicare taxes. ASCI has
an extensive fringe benefits program for its employees.
3. Paige earned salary of $70,000 (before subtracting her 401(k) and flexible
spending 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 personal
whole life insurance policy. ASCI also paid health club dues of $900 to a
nearby health club on Paige’s behalf.
5. Taking advantage of ASCI’s educational assistance program, during the fall
Paige enrolled in two graduate engineering classes at a local college. ASCI paid
her 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 her
superior handling of three potential crises during the year, Paige was
awarded the Employee Safety Award on December 15. The cash award
was $500.
8. On January 15, 2012, Paige’s father died. From her father’s estate, she received
stock 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 statement
from her brokerage firm reporting the interest and dividends earned on the
investments for 2012. (See Exhibit A.)
10. 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 100,000 shares outstanding (S corp. ID number
45-4567890). G rubstake reported taxable income of $200,000 and paid a
distribution of $1.00 per share during the current year. Paige tells you t hat
Grubstake 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’s
activities.
11. Paige slipped on a wet spot in front of a computer store last July. She broke her
ankle and was unable to work for two weeks. She incurred $1,300 in medical
costs, 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 pay
her salary during the two weeks she missed because of the accident. ASCI’s
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 b enefit.
C-ll
C-12
Appendix C
EXHIBIT A
Forms 1099 and 1098
This is important tax information and is being furnished to the Internal Revenue Service.
1099-Div Dividends & Distributions
Description
Entity
Amount
Gross qualified dividends
General Dynamics
$300
1099-lnt Interest
Entity
Description
New Jersey Economic Development bonds
IBM bonds
State of Nebraska bonds
Gross interest
Gross interest
Gross interest
Amount
$300
700
200
1098-Mortgage Interest Statement
Description
Amount
Mortgage interest
Home-equity loan interest
$7,100
435
Entity
Sunbelt Credit Union
Northeast Bank
Grubstake Mining & Development: preliminary report (preliminary K-l) to Paige for the 2012 tax year
Distribution to shareholder
Ordinary income (1% of $200,000)
$1,000
$2,000
12. 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.
Security
Sale
Date
Purchase
Date
Sales
Price
Commission
Paid on Sale
Nebraska state bonds
Cassill Corp (500 shares)
03/14/12
10/20/12
10/22/06
02/19/11
$2,300
$8,500
$425
$160
Her
Basis
$1,890
$9,760
13. 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-quarter
state payment was made on December 28, 2012. Paige would like to receive a
refund 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 federal
income tax r eturns by the due date (April 17, 2012). In f iling her e xtension
on A pril 17, 2012, she made a federal tax p ayment of $750. Her r eturn was
eventually 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 2 011
were $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 to
pay the first and last months’ rent and a $400 security deposit. The s ecurity
deposit is to be r eturned at the end of the lease if the p roperty is in good
condition. On August 1, Paige received $1,200 from the t enant per the t erms
of the lease agreement. In November, the p lumbing froze and several pipes
burst. 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 lumbing
Appendix C
repairs. Paige provides you with the following additional information for the
rental in 2012.
Property taxes
Other maintenance expenses
Insurance expense
Management fee
Depreciation (to be computed)
$770
285
495
350
?
The rental property is located at 35 Harvest Street, Orono, ME 04473. Local
practice is to allocate 12 percent of the f air m arket value of the property to the
land. (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 estate
tax 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 in
property 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 following
unreimbursed medical costs:
Dentist
Doctor
Prescription drugs
Over-the-counter drugs
Optometrist
Emergency room charges
LASIK eye surgery
Chiropractor
$ 310
390
215
140
125
440
2,000
265
19. 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 for
15 years. She paid $215 in closing costs and $1,500 in discount points (prepaid
interest) to obtain the loan. The house is worth $155,000, and Paige’s basis in
the house is $90,000. As part of the refinancing arrangement, she also obtained
a $10,000 home-equity loan. She used the proceeds from the home-equity loan
to reduce the balance due on her credit cards. Paige received several Form 1098
statements from her bank for interest paid by her in 2012. Details appear below.
(See also Exhibit A on page C -ll.)
Primary home mortgage
Home-equity loan
Credit cards
Car loan
$7,100
435
498
390
20. On May 14, 2012, Paige contributed clothing to the Salvation Army. The original cost of the clothing was $740. She has substantiation valuing the donation
at $360. The Salvation Army is located at 350 Stone Ridge Road, Bangor,
ME 04401. In a ddition, she made the f ollowing cash contributions and
received a statement from each of the following organizations acknowledging
her contribution:
Larkin College
United Way
First Methodist Church
Amos House (homeless shelter)
Local Chamber of Commerce
$850
125
790
200
100
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C-14
Appendix C
21. On A pril 1, 2012, Paige’s house was robbed. She a pparently interrupted
the burglar because all that’s missing is an a ntique brooch she inherited
from her g randmother (June 12, 2004) and $300 in cash. Unfortunately, she
didn’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 be
claimed in a t heft.
22. Paige sells real estate in the evening and on weekends. She r uns her b usiness
from a r ental office she shares w ith several other realtors (692 River Road
Bangor, ME 04401). The name of her business is T urner Real Estate and
the 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 always
shown a p rofit. She had the f ollowing income and expenses from her
business:
Commissions earned
Expenses:
Advertising
Telephone
Real estate license
Rent
Utilities
$21,250
2,200
95
130
6,000
600
She 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). The
total mileage on her car (i.e., business- and personal-use miles) during the year
was 15,000 miles (including 200 miles commuting to and from the real estate
office). In 2012, Paige elects to use the standard mileage method to calculate
her car expenses. She spent $45 on tolls and $135 on p arking related to the
real estate business.
23. Paige’s company has an accountable expense reimbursement plan for employees
from which Paige receives $12,000 for the following expenses:
Airfare
Hotel
Meals
Car rentals
Entertainment
Incidentals
$4,700
3,400
2,000
600
900
400
24. D uring 2012, Paige also paid $295 for business publications other than
those paid for by her employer and $325 for a local CPA to prepare her 2011
tax return.
CORPORATE TAX RETURN PROBLEM 1
Required:
• Complete Alvin’s Music Inc.’s (AMI) 2012 Form 1120, Schedule D, and
Schedule G (if applicable) using the information provided below.
• Neither Form 4562 for depreciation nor Form 4797 for the sale of the equipment
is required. Include the amount of tax depreciation and the tax gain on the
