Carmin Kovach is single and has two children from her previousmarriage. Anika,
9, lives with Carmin. Julius, 11, lives with his father, Ray.Carmin pays alimony of
$400 per month to Ray. The payments are to continue until Juliusreaches age 18,
when they will be reduced to $100.
Carmin is 34 and employed as a nuclear engineer with AtomSystems Consultants,
Inc. (ASCI). Her annual salary is $80,000, and ASCI has anextensive fringe
benefits program for its employees.
ASCI has a qualified pension plan that covers all employees.Under the plan,
ASCI matches any contribution to the plan up to 8% of theemployeeâs annual salary.
Carmin makes the maximum allowable contribution of $6,400, andit is
matched by ASCI.
ASCI provides medical coverage to all employees but not to theirdependents.
Carminâs medical coverage costs ASCI $3,000 during the currentyear. She
receives $980 in reimbursements for her medical costs. ASCI alsoprovides employees
with a flexible benefits plan. Carmin pays $2,500 into the plan.She uses
$2,400 to purchase medical coverage for Anika. Her medical,dental, and optometry
costs not covered by insurance total $1,900; the flexiblebenefits plan reimburses
her $100 for these costs.
ASCI also provides employees with group term life insurance oftwice their annual
salary, up to a maximum coverage of $150,000. Carminâs groupterm life insurance
premiums cost $400. Because of the sensitive and sometimesdangerous
nature of her work, ASCI also provides Carmin with a $300,000whole life insurance
policy. The whole life insurance policy costs $490.
Taking advantage of ASCIâs educational assistance program,during the fall
Carmin enrolls in two law school classes at a local university.ASCI pays her tuition,
fees, books, and other course-related costs totaling $2,300.
Carmin also receives certain other fringe benefits not availableto all employees.
She receives free parking in the companyâs security garage thatwould normally
cost $280 per month. In addition, ASCI pays the $1,000 cost ofher nuclear engineerâs
license and $600 per year in professional association dues andprofessional
magazine subscriptions. ASCI also pays Carminâs $900 dues to ahealth club that is
located in the same building as her office.
Carmin routinely enters sweepstakes contests. This year, she isnotified that
she has won $5,000 in a breakfast cereal promotion. The prize isto be paid equally
over 10 years. She receives the first payment December 28,although she doesnât
deposit the check in her checking account until January 3.
In February, Carminâs father dies. Social Security pays her $600as a survivorâs
benefit. She also receives stock valued at $30,000 and herfatherâs house, which
has a value of $90,000, as her share of her fatherâs estate.
Carmin rents out her fatherâs house on August 1. The monthlyrent is $400,
and the lease agreement is for one year. The lease requires thetenant to pay the first
and last monthsâ rent and a $400 security deposit. The securitydeposit is to be
returned at the end of the lease if the property is in goodcondition. On August 1,
Carmin receives $1,200 from the tenant per the terms of thelease agreement. In
November, the plumbing freezes and several lines burst. Thetenant has the repairs
made and pays the $300 bill. In December, he reduces his rentalpayment to $100
to compensate for the plumbing repairs. Carmin pays otherdeductible costs for the
rental that total $2,680. The allowable depreciation on therental house is $1,080.
Carmin owns several other investments. She receives thefollowing amounts
(all in cash) from the stocks and bonds she owns:
General Dynamics common stock $ 300
City of Toronto bonds 1,600
State of Nebraska bonds 400
New Jersey economic development bonds 300
Grubstake Mining Development stock 1,000
.
Carmin owns 1,000 shares of Grubstake Mining Development commonstock.
Grubstake is organized as an S corporation and has 100,000shares outstanding.
Grubstake reports taxable income of $200,000 during the currentyear.
Carmin sells the following securities during 2013:
Security Sale Date
Purchase
Date
Sale
Price
Commission
Paid Basis
Nebraska Bonds 3/14/13 10/22/10 $1,900 $ 80 $1,710
Cassill Corporation
Stock
10/18/13 2/19/13 $8,900 $450 $9,630
Carmin purchased 500 shares of General Dynamics stock on July22, 2010, at
a cost of $2,200. On June 15, 2013, she receives 50 shares ofGeneral Dynamics
stock as a dividend. The fair market value of General Dynamicsstock on June 15,
2013, was $3.50 per share.
Carmin slips on a wet spot in front of a computer store duringthe current
year. She breaks her ankle and is unable to work for two weeks.She incurs $1,300
in medical costs, all of which are paid by the owner of thestore. The store also
gives her $1,000 for pain and suffering resulting from theinjury. ASCI continues
to pay her salary during the two weeks she misses because of theaccident. ASCIâs
plan also pays her $1,200 in disability pay for the time she isunable to work.
Calculate Carminâs adjusted gross income on her 2013 tax return.Then do
one or both of the following, according to your professorâsinstructions:
a. Include a brief explanation of how you determined each itemthat affected
adjusted gross income and any items you excluded from grossincome. Your
solution to the problem should contain a list of each itemincluded in adjusted
gross income and its amount, with the explanations attached.
b. Write a letter to Carmin explaining how you determined eachitem that
affected adjusted gross income and any items you excluded fromgross income.
You should include a list of each item included in adjustedgross income and
its amount.
Carmin Kovach is single and has two children from her previousmarriage. Anika,
9, lives with Carmin. Julius, 11, lives with his father, Ray.Carmin pays alimony of
$400 per month to Ray. The payments are to continue until Juliusreaches age 18,
when they will be reduced to $100.
Carmin is 34 and employed as a nuclear engineer with AtomSystems Consultants,
Inc. (ASCI). Her annual salary is $80,000, and ASCI has anextensive fringe
benefits program for its employees.
ASCI has a qualified pension plan that covers all employees.Under the plan,
ASCI matches any contribution to the plan up to 8% of theemployeeâs annual salary.
Carmin makes the maximum allowable contribution of $6,400, andit is
matched by ASCI.
ASCI provides medical coverage to all employees but not to theirdependents.
Carminâs medical coverage costs ASCI $3,000 during the currentyear. She
receives $980 in reimbursements for her medical costs. ASCI alsoprovides employees
with a flexible benefits plan. Carmin pays $2,500 into the plan.She uses
$2,400 to purchase medical coverage for Anika. Her medical,dental, and optometry
costs not covered by insurance total $1,900; the flexiblebenefits plan reimburses
her $100 for these costs.
ASCI also provides employees with group term life insurance oftwice their annual
salary, up to a maximum coverage of $150,000. Carminâs groupterm life insurance
premiums cost $400. Because of the sensitive and sometimesdangerous
nature of her work, ASCI also provides Carmin with a $300,000whole life insurance
policy. The whole life insurance policy costs $490.
Taking advantage of ASCIâs educational assistance program,during the fall
Carmin enrolls in two law school classes at a local university.ASCI pays her tuition,
fees, books, and other course-related costs totaling $2,300.
Carmin also receives certain other fringe benefits not availableto all employees.
She receives free parking in the companyâs security garage thatwould normally
cost $280 per month. In addition, ASCI pays the $1,000 cost ofher nuclear engineerâs
license and $600 per year in professional association dues andprofessional
magazine subscriptions. ASCI also pays Carminâs $900 dues to ahealth club that is
located in the same building as her office.
Carmin routinely enters sweepstakes contests. This year, she isnotified that
she has won $5,000 in a breakfast cereal promotion. The prize isto be paid equally
over 10 years. She receives the first payment December 28,although she doesnât
deposit the check in her checking account until January 3.
In February, Carminâs father dies. Social Security pays her $600as a survivorâs
benefit. She also receives stock valued at $30,000 and herfatherâs house, which
has a value of $90,000, as her share of her fatherâs estate.
Carmin rents out her fatherâs house on August 1. The monthlyrent is $400,
and the lease agreement is for one year. The lease requires thetenant to pay the first
and last monthsâ rent and a $400 security deposit. The securitydeposit is to be
returned at the end of the lease if the property is in goodcondition. On August 1,
Carmin receives $1,200 from the tenant per the terms of thelease agreement. In
November, the plumbing freezes and several lines burst. Thetenant has the repairs
made and pays the $300 bill. In December, he reduces his rentalpayment to $100
to compensate for the plumbing repairs. Carmin pays otherdeductible costs for the
rental that total $2,680. The allowable depreciation on therental house is $1,080.
Carmin owns several other investments. She receives thefollowing amounts
(all in cash) from the stocks and bonds she owns:
General Dynamics common stock $ 300
City of Toronto bonds 1,600
State of Nebraska bonds 400
New Jersey economic development bonds 300
Grubstake Mining Development stock 1,000
.
Carmin owns 1,000 shares of Grubstake Mining Development commonstock.
Grubstake is organized as an S corporation and has 100,000shares outstanding.
Grubstake reports taxable income of $200,000 during the currentyear.
Carmin sells the following securities during 2013:
Security Sale Date
Purchase
Date
Sale
Price
Commission
Paid Basis
Nebraska Bonds 3/14/13 10/22/10 $1,900 $ 80 $1,710
Cassill Corporation
Stock
10/18/13 2/19/13 $8,900 $450 $9,630
Carmin purchased 500 shares of General Dynamics stock on July22, 2010, at
a cost of $2,200. On June 15, 2013, she receives 50 shares ofGeneral Dynamics
stock as a dividend. The fair market value of General Dynamicsstock on June 15,
2013, was $3.50 per share.
Carmin slips on a wet spot in front of a computer store duringthe current
year. She breaks her ankle and is unable to work for two weeks.She incurs $1,300
in medical costs, all of which are paid by the owner of thestore. The store also
gives her $1,000 for pain and suffering resulting from theinjury. ASCI continues
to pay her salary during the two weeks she misses because of theaccident. ASCIâs
plan also pays her $1,200 in disability pay for the time she isunable to work.
Calculate Carminâs adjusted gross income on her 2013 tax return.Then do
one or both of the following, according to your professorâsinstructions:
a. Include a brief explanation of how you determined each itemthat affected
adjusted gross income and any items you excluded from grossincome. Your
solution to the problem should contain a list of each itemincluded in adjusted
gross income and its amount, with the explanations attached.
b. Write a letter to Carmin explaining how you determined eachitem that
affected adjusted gross income and any items you excluded fromgross income.
You should include a list of each item included in adjustedgross income and
its amount.