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Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2014. Alfred and Beulah will file a joint return for 2016. Alfred's Social Security number is 111‐11‐1112. Beulah's Social Security number is 123‐45‐6789, and she adopted “Old” as her married name. They live at 211 Brickstone Drive, Atlanta, GA 30304. Alfred was divorced from Sarah Old in March 2014. Under the divorce agreement, Alfred is to pay Sarah $1,250 per month for the next 10 years or until Sarah's death, whichever occurs first. Alfred pays Sarah $15,000 in 2016. In addition, in January 2016, Alfred pays Sarah $50,000, which is designated as being for her share of the marital property. Sarah's Social Security number is 123‐45‐6788. Alfred's salary for 2016 is $150,000, and his employer, Cherry, Inc. (Federal I.D. No. 98‐ 7654321). His employer withheld $24,900 for Federal income taxes and $8,000 for state income taxes. The proper amounts were withheld for FICA taxes. Beulah recently graduated from law school and is employed by Legal Aid Society, Inc. (Federal I.D. No. 11‐1111111), as a public defender. She receives a salary of $40,000 in 2016. Her employer withheld $7,500 for Federal income taxes and $2,400 for state income taxes. The proper amounts were withheld for FICA taxes. Beulah has $2,500 in qualified dividends on Yellow Corporation stock she inherited. Alfred and Beulah receive a $1,900 refund on their 2015 state income taxes. They itemized deductions on their 2015 Federal income tax return (total of $15,000). Alfred and Beulah pay $4,500 interest and $1,450 property taxes on their personal residence in 2016. Their charitable contributions total $2,400 (all to their church). They paid sales taxes of $1,400, for which they maintain the receipts. Both spouses had health insurance for all months of 2016 and do not want to contribute to the Presidential Election Campaign. Prepare the 2016 Federal income tax return for the Olds'. The required forms are the 2016 Federal 1040 and Schedule A. You may work in groups no larger than 3 (i.e. 1, 2, or 3). Submit one tax return per group. Please provide a cover page with the list of students who participated in each group. Hints: 1) The total itemized deductions should total $18,750. 2) State tax refunds are taxable if the taxpayer benefited from a state tax deduction in the prior year (i.e. if they deducted state tax payments in the prior year, then refunds are taxable in the current year).

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Elin Hessel
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28 Sep 2019

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Alice J. and Bruce M. Byrd are married taxpayers who file a joint return. Their Social Security numbers are 123-45-6789 and 111-11-1112, respectively. Alice’s birthday is September 21, 1969, and Bruce’s is June 27, 1968. They live at 473 Revere Avenue, Lowell, MA 01850. Alice is the office manager for Lowell Dental Clinic, 433 Broad Street, Lowell, MA 01850 (employer identification number 98-7654321). Bruce is the manager of a Super Burgers fast-food outlet owned and operated by Plymouth Corporation, 1247 Central Avenue, Hauppauge, NY 11788 (employer identification number 11-1111111). The following information is shown on their Wage and Tax Statements (Form W–2) for 2016.

Line Description

Alice Bruce 1 Wages, tips, other compensation $58,000 $62,100

2 Federal income tax withheld 4,500 6,300

3 Social Security wages 58,000 62,100

4 Social Security tax withheld 3,596 3,850

5 Medicare wages and tips 58,000 62,100

6 Medicare tax withheld 841 900

15 State Massachusetts Massachusetts

16 State wages, tips, etc. 58,000 62,100

17 State income tax withheld 2,950 3,100

The Byrds provide over half of the support of their two children, Cynthia (born January 25, 1992, Social Security number 123-45-6788) and John (born February 7, 1996, Social Security number 123-45-6786). Both children are full-time students and live with the Byrds except when they are away at college. Cynthia earned $4,200 from a summer internship in 2016, and John earned $3,800 from a part-time job. During 2016, the Byrds provided 60% of the total support of Bruce’s widower father, Sam Byrd (born March 6, 1940, Social Security number 123-45-6787). Sam lived alone and covered the rest of his support with his Social Security benefits. Sam died in November, and Bruce, the beneficiary of a policy on Sam’s life, received life insurance proceeds of $1,600,000 on December 28. The Byrds had the following expenses relating to their personal residence during 2016:

Property taxes $5,000

Qualified interest on home mortgage 8,700 Repairs to roof 5,750

Utilities 4,100

Fire and theft insurance 1,900

The Byrds had the following medical expenses for 2016:

Medical insurance premiums $4,500

Doctor bill for Sam incurred in 2015 and not paid until 2016 7,600

Operation for Sam 8,500

Prescription medicines for Sam 900

Hospital expenses for Sam 3,500

Reimbursement from insurance company, received in 2016 3,600

The medical expenses for Sam represent most of the 60% that Bruce contributed toward his father’s support. Other relevant information follows:

• When they filed their 2015 state return in 2016, the Byrds paid additional state income tax of $900.

• During 2016, Alice and Bruce attended a dinner dance sponsored by the Lowell Police Disability Association (a qualified charitable organization). The Byrds paid $300 for the tickets. The cost of comparable entertainment would normally be $50.

• The Byrds contributed $5,000 to Lowell Presbyterian Church and gave used clothing (cost of $1,200 and fair market value of $350) to the Salvation Army. All donations are supported by receipts, and the clothing is in very good condition.

• Alice and Bruce made a gift to a needy family who lost their home in a fire ($100). In addition, they made several cash gifts to homeless men downtown ($35).

• In 2016, the Byrds received interest income of $2,750, which was reported on a Form 1099–INT from Second National Bank, 125 Oak Street, Lowell, MA 01850 (Employer Identification Number 98-7654322). The mortgage (outstanding balance of $425,000 as of January 1, 2016) was taken out by the Byrds on May 1, 2012.

• Alice’s employer requires that all employees wear uniforms to work. During 2016, Alice spent $850 on new uniforms and $566 on laundry charges.

• Bruce paid $400 for an annual subscription to the Journal of Franchise Management and $741 for annual membership dues to his professional association.

• Neither Alice’s nor Bruce’s employer reimburses for employee expenses.

• The Byrds do not keep the receipts for the sales taxes they paid and had no major purchases subject to sales tax.

• All members of the Byrd family had health care coverage for all months of 2016.

• This year the Byrds gave each of their children $2,000, which was then deposited into their Roth IRAs.

• Alice and Bruce paid no estimated Federal income tax.

Neither Alice nor Bruce wants to designate $3 to the Presidential Election Campaign.

Tax Computation:

Compute net tax payable or refund due for Alice and Bruce Byrd for 2016. If they have overpaid, they want the amount to be refunded to them. If you use tax forms for your computations, you will need Forms 1040 and 2106 and Schedules A and B.

Assignment Help >> Managerial Accounting

INDIVIDUAL TAX RETURN PROBLEM 5

Required:

Use the following information to complete Paul and Judy Vance's2014 federal income tax return. If information is missing, usereasonable assumptions to fill in the gaps.

You may need the following forms and schedules to complete theproject: Form 1040, Schedule A, Schedule B, Schedule C, Schedule D,Schedule E, Schedule SE, Form 2106-EZ, Form 4562 (for the dentalpractice), Form 4562 (for the rental property), Form 4797, Form8863, and Form 8949. The forms, schedules, and instructions can befound at the IRS website (www.irs.gov). The instructions can behelpful in completing the forms.

Facts:

Paul J. and Judy L. Vance are married and file a joint return.Paul is self-employed as a dentist, and Judy is a collegeprofessor. Paul and Judy have three children. The oldest is Vincewho lives at home. Vince is a law student at the University ofCincinnati and worked part-time during the year, earning $1,500,which he spent for his own support. Paul and Judy provided $6,000toward Vince's support (including $4,000 for Vince's fall tuition).They also provided over half the support of their daughter, Joan,who is a full-time student at Edgecliff College in Cincinnati. Joanworked part-time as an independent contractor during the year,earning $3,200. Joan lived at home until she was married inDecember 2014. She filed a joint return with her husband, Patrick,who earned $20,000 during the year. Jennifer is the youngest andlived in the Vances' home for the entire year. The Vances provideyou with the following additional information:

Paul and Judy would like to take advantage on their return ofany educational expenses paid for their children.

The Vances do not want to contribute to the presidentialelection campaign.

The Vances live at 621 Franklin Avenue, Cincinnati, OH45211.

Paul's birthday is 3/5/1957 and his Social Security number is333-45-6666.

Judy's birthday is 4/24/1960 and her Social Security number is566-77-8888.

Vince's birthday is 11/6/1991 and his Social Security number is576-18-7928.

Joan's birthday is 2/1/1995 and her Social Security number is575-92-4321.

Jennifer's birthday is 12/12/2002 and her Social Security numberis 613-97-8465.

The Vances do not have any foreign bank accounts or trusts.

Judy is a lecturer at Xavier University in Cincinnati, where sheearned $30,000. The university withheld federal income tax of$3,375, state income tax of $900, Cincinnati city income tax of$375, $1,860 of Social Security tax and $435 of Medicare tax. Shealso worked part of the year for Delta Airlines. Delta paid her$10,000 in salary, and withheld federal income tax of $1,125, stateincome tax of $300, Cincinnati city income tax of $125, SocialSecurity tax of $620, and Medicare tax of $145.

The Vances received $800 of interest from State Savings Bank ona joint account. They received interest of $1,000 on City ofCincinnati bonds they bought in January with the proceeds of a loanfrom Third National Bank of Cincinnati. They paid interest of$1,100 on the loan. Paul received a dividend of $540 on GeneralBicycle Corporation stock he owns. Judy received a dividend of $390on Acme Clothing Corporation stock she owns. Paul and Judy receiveda dividend of $865 on jointly owned stock in Maple Company. All ofthe dividends received in 2014 are qualified dividends.

Paul practices under the name "Paul J. Vance, DDS." His businessis located at 645 West Avenue, Cincinnati, OH 45211, and hisemployer identification number is 01-2222222. Paul's gross receiptsduring the year were $111,000. Paul uses the cash method ofaccounting for his business. Paul's business expenses are asfollows:

Advertising

1,200 $

Professional dues

490

Professional journals

360

Contributions to employee benefit plans

2,000

Malpractice insurance

3,200

Fine for overbilling State of Ohio for work performed on welfarepatient

5,000

Insurance on office contents

720

Interest on money borrowed to refurbish office

600

Accounting services

2,100

Miscellaneous office expense

388

Office rent

12,000

Dental supplies

7,672

Utilities and telephone

3,360

Wages

30,000

Payroll taxes

2,400

In June, Paul decided to refurbish his office. This project wascompleted and the assets placed in service on July 1. Paul'sexpenditures included $8,000 for new office furniture, $6,000 fornew dental equipment (seven-year recovery period), and $2,000 for anew computer. Paul elected to compute his cost recovery allowanceusing MACRS. He did not elect to use §179 immediate expensing, andhe chose to not claim any bonus depreciation.

Judy's mother, Sarah, died on July 2, 2009, leaving Judy herentire estate. Included in the estate was Sarah's residence (325Oak Street, Cincinnati, OH 45211). Sarah's basis in the residencewas $30,000. The fair market value of the residence on July 2,2009, was $155,000. The property was distributed to Judy on January1, 2010. The Vances have held the property as rental property andhave managed it themselves. From 2010 until June 30, 2014, theyrented the house to the same tenant. The tenant was transferred toa branch office in California and moved out at the end of June.Since they did not want to bother finding a new tenant, Paul andJudy sold the house on June 30, 2014. They received $140,000 forthe house and land ($15,000 for the land and $125,000 for thehouse), less a 6 percent commission charged by the broker. They haddepreciated the house using the MACRS rules and conventionsapplicable to residential real estate. To compute depreciation onthe house, the Vances had allocated $15,000 of the property's basisto the land on which the house is located. TheVances collected rentof $1,000 a month during the six months the house was occupiedduring the year. They incurred the following related expensesduring this period:

Property insurance

$500

Property taxes

800

Maintenance

465

Depreciation (to be computed)

?

The Vances sold 200 shares of Capp Corporation stock onSeptember 3, 2014, for $42 a share (minus a $50 commission). TheVances received the stock from Paul's father on June 25, 1980, as awedding present. Paul's father originally purchased the stock for$10 per share in 1967. The stock was valued at $14.50 per share onthe date of the gift. No gift tax was paid on the gift.

Judy is required by Xavier University to visit several highschools in the Cincinnati area to evaluate Xavier Universitystudents who are doing their practice teaching. However, she is notreimbursed for the expenses she incurs in doing this. During thespring semester (January through April 2014), she drove herpersonal automobile 6,800 miles in fulfilling this obligation. Judydrove an additional 6,700 personal miles during 2014. She has beenusing the car since June 30, 2013. Judy uses the standard mileagemethod to calculate her car expenses.

Paul and Judy have given you a file containing the followingreceipts for expenditures during the year:

Prescription medicine and drugs (net of insurancereimbursement)

376 $

Doctor and hospital bills (net of insurance reimbursement)

2,468

Penalty for underpayment of last year's state income tax

15

Real estate taxes on personal residence

4,762

Interest on home mortgage (paid to Home State Savings &Loan)

8,250

Interest on credit cards (consumer purchases)

595

Cash contribution to St. Matthew's church

3,080

Payroll deductions for Judy's contributions to the UnitedWay

150

Professional dues (Judy)

325

Professional subscriptions (Judy)

245

Fee for preparation of 2013 tax return paid April 12, 2014

500

The Vances filed their 2013 federal, state, and local returns onApril 12, 2014. They paid the following additional 2013 taxes withtheir returns: federal income taxes of $630, state income taxes of$250, and city income taxes of $75.

The Vances made timely estimated federal income tax payments of$1,500 each quarter during 2014. They also made estimated stateincome tax payments of $300 each quarter and estimated city incometax payments of $160 each quarter. The Vances made allfourth-quarter payments on December 31, 2014. They would like toreceive a refund for any overpayments.

Paul and Judy have qualifying insurance for purposes of theAffordable Care Act (ACA).

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