Income Tax Accounting
TAX RETURN PROBLEM--
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
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.
Box 1 Wages, tips and other compensation
Box 2 Federal Income Tax Withheld
Box 3 Social Security Wages
Box 4 Social Security Tax Withheld
Medicare wages and tips
Box 6 Medicare Tax withheld
16 State Wages
State Income Tax
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