Tax Return Project Fall 2011 Due November 1, 2011

Tax Return Project Fall 2011 Due November 1, 2011 - Income...

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Income Tax Accounting Fall 2011 TAX RETURN PROBLEM-- This assignment is due on Tuesday, November 1, 2011 Gary and Jennifer Smith have been happily married for the past 25 years, and look forward to a very comfortable retirement. Gary, who expects to continue working until age 70, began collecting social security in 2009 when he reached 65 years of age. Gary received $24,000 in social security benefits in 2010 as reported on Form SSA-1099 which he received from the Social Security Administration. Jennifer and Gary have requested your help in preparing their 2010 federal tax return. Gary’s social security number is 164-32-0418. Jennifer is 64 years old and also expects to retire at age 70. Her social security number is 059-48-3125. They live at 220 Easton Avenue, New Brunswick, New Jersey 08903. Jennifer’s mother, Cindy Watkins, who lived with the Smiths for the entire year is 97 years old. The Smiths provide the majority of Mrs. Watkin’s support. Mrs. Watkins income consists of $2,000 of dividend income and $15,000 of interest income on a State of New Jersey municipal bond. Mrs. Watkins social security number is 333-888-9999 Gary, a professional engineer, is an employee at both Nicholas Machinery Company and at ABC Manufacturing Company. Shown below is information from the W-2 forms that Gary received from these two companies in 2010. Nicholas ABC Box 1 Wages, tips and other compensation $325,000.00 $148,000.00 Box 2 Federal Income Tax Withheld 84,419.00 40,000.00 Box 3 Social Security Wages 106,800.00 106,800.00 Box 4 Social Security Tax Withheld 6,621.60 6,621.60 Box 5 Medicare wages and tips 355,000.00 148,000.00 Box 6 Medicare Tax withheld 5,147.50 2,146.00 Box 16 State Wages NJ 355,000.00 148,000.00 Box 17 State Income Tax 11,618.00 2,482.00 Gary’s Box 1 amounts for Nicholas Machinery Company, (wages, tips and other compensation) and for ABC Manufacturing Company are the amounts of Gary’s salary from these companies which should be included in his gross income. Gary’s Box 3 amount (Social Security Wages) ($106,800) for both of the companies he worked for in 2010 is the maximum amount of wages subject, in 2010, to a 6.2% social security tax rate. Gary’s Box 3 amounts ($106.800) is less than his Box 5 amount 1
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(Medicare wages and tips) because the maximum tax base on social security for 2008 is limited to $106,800 whereas Medicare tax withheld (at a rate of 1.45%) applies to his entire salary which for both of the companies he worked for exceeded $106,800. Recall from Chapter 1 in our textbook that the Medicare tax rate of 1.45% applies regardless how high someone’s salary might become. Often the amount in Box 1 (Wages Tips and Compensation) is the same as the amount in Box 5 (Medicare wages and tips). Notice this is the case in regards to Gary’s work at ABC Manufacturing Company. Sometimes the amount in Box 1 (Wages Tips and Compensation) is less than the amount
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This document was uploaded on 11/03/2011 for the course ACCOUNTING 415 at Rutgers.

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Tax Return Project Fall 2011 Due November 1, 2011 - Income...

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