Fall 2011 Tax I project - COMPREH RETURN P PROBLEM...

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Unformatted text preview: COMPREH RETURN P PROBLEM lwlNQIXIDUALSWgFQRM 19.40:). ' .swvfir-n'mmu.b;r"' —'-.Ju—.?:.n=-..:1-a';-- «2-.- ; .. »-.-—»...--..5.:.... cm“ _ manna, 7mg“. - rwnm. ".mm-t-guzlwvwmm Paul S. and Ruth N. Hood (ages 42 and 41) are married and Event 4326 Orange Blossom Trail, Tampa, FL 33601. Paul is the regional manager for aimdget motel chain (Rest Inn), while Ruth is a self—employed architect. They file a joint re turn and use the cash basis for tax purposes. 1. Paul receives a yearly salary of $82,000, plus an annual bonus, from Rest Inn. The annual bonus is determined in December of each year but not paid following year. Paul’s bonus is $6,000 for 2009 {received in 2010) and 37,000 for 2010 (received in 2011). Paul also is paid a flat travel allowance of $16,000 per year. The allowance is to cover his expenses in visiting motels in his region to conduct inspections, consult with the local managers, and recruit potential hires. Although Paul maintains substantiation of his travel, he is not required to account for these expenses to Rest Inn. Paul participates in his employer’s group health insurance plan to which he contributed 33,600 in 2010 for medical coverage. Rest Inn does not provide any retirement benefits, but it has established a § 401(k) plan to enable its employees to make voluntary contributions. Paul did not contribute to the plan in 2010. The company provides an office for Paul’s use that is located at Suite 419, 1 10 Palm Boulevard, Tampa. 2. Besides die business use of the Impaia (see item 3 below), Paul’s employment-related expenses for 2010 are as follows: ‘ Airfare $2,603- Lodging ' 3,200 Meals 3,400 Entertainment 800 Car rentals, limos, taxis 600 Parking and tolls (during travel) 300 Subscriptions to trade journals 120 Dues to trade association 80 Business gifts 550 While on business trips in his Impaia, Paul was caught in severai small—town speed traps and paid fines of $620. The business gifts Were made at Chn'stmas and consisted of gift cards ($50 each) to a national chain restaurant. They were sent to II key managers of rnotels in Paul’s region. 3. On March. 5, 2009, Paul purchased a new Chevrolet Impala for use in his job. The car, a five-passenger sedan, cost $24,000 {including sales tax), with no trade—in involved. The car was driven 14,000 miles in 2009 and 18,000 in 2010 with usage as follows 20% for commuting to the office and 80% for business trips. The mileage for 2010 was evenly E-1 E-2 Appendix E Comprehensive Tax Return Problems distributed throughout the year. Paul uses the actual operating cost method and for depreciation purposes uses 200% declining-balance with a haifwyear convention. N0 § 179 expensing or additional first-year depreciation has been claimed. {See Table 3 of the Instructions to Form 4502.) Paul’s expenses relating to the operation of the Impala for 2010 are as follows: Gasoline 7 $2,500 Oil change and lubrication 110 Auto insurance 1,800 Repairs 400 Auto club dues 160 License and registration ' 120 interest on car ann 900 . Ruth is a licensed architect who works part-time on a consulting basis. Her maj or clients are real estate developers (both residential and commercial) for which she prepares SU‘LICCLLra] designs and construction plans. She also advises on building code requirements regarding the renovation and remodeling of existing structures. Because she limits her engagements, she does not have a separate office but does her work at the client's premises or in her office at home (see item 5 below). Her business expenses for 2010 are summarized below: Drafting supplies $4,800 Reproduction materials (e.g., molds, models, photos, blueprints, copies) 3,200 Onasite work clothing (e.g., hip boots, safety glasses, safety helmet) 800 Occupation fee 400 Su bSCriptions to professional journals. 250 Dues to professional organizations 240 In addition, she drove the family Aettra (purchased on June 7, 2009) 940 miles on her job assignments. Regarding the Aenra, Ruth uses the automatic mileage method for tax deduction purposes. She drove the car for 10,000 miles during the year. . When the Hoods purchased their home on February 2, 2009, they set aside 300 square feet {out of a total of 2,400 square feet) of living space for Ruth’s office. As ofJanuary 1, 2010, the home had an adjusted basis of $440,000 for purposes of line 36 of Form 8829 ( of which $40,000 is attributable to the land)-uthe fair marker value of the property is in excess of this amount. Relevant information concerning the residence for 2010 appears below: Homeowner's insurance $3,200 Repairs and maintenance ' 1.800 UtiEities - ' 5,200 Painting (office area only) 2,500 All of Ruth’s office furniture and equipment was previously expensed (under § 179) when acquired. On June 29, 2010, however, she purchased a fireproof fiie cabinet for $800. The purpose of the acquisition is to further safeguard some of her current and more valuable past architectural drafts and finalized plans. If possible, Ruth prefers to avoid depreciating capital expenditures. ' . One of Ruth's clients was interested in building a shopping center on a tract of land she owned in Levy County. Ruth inherited the property from her auntwhen 5116 died on June 0, 1990. At that time, the land was worth $40,000. It has since been rezoned {01' commercial use and has a current value of $200,000. On February 10, 2010, the following exchange took place in the office of an attorney: Ruth exchanged the Levy parcel for a similar tractin Dixie County (worth $190,000) and cash of $10,000. . On September 2, 2010, Ruth sold a tract of land in Citrus County to a farmer who owned the adjoining property. The land was inherited from the same aunt and had a value of $30,000 on june 0, 1990. Under the terms of the sale, Ruth received cash of $20,000 and four notes of$25,000 each payable at one-year intervals with simple interest of 8% provided for. To the extent allowed, Ruth wants to defer recognition of gain as long as possible. Appendix E Comprehensive Tax Return Problems 8. During early 2009, Judy Knowles, one of Paul’s more competent motel managers, was being subjected to domestic abuse. When the situation became intolerable, she left for parts unknown. Before she left on May 6, 2009, Paul loaned her $5,000 to help her relocate. Paul had her sign an interest—free note due in one year. In late 2010, Paul heard that she had committed suicide after moving to Costa Rica. Paul has no expectation that the loan will ever be repaid. 9., On August 5, 2008, Paul purchased 1,000 shares of NFM common stock for $20 a share as part of its initial public offering. The corporation was foi‘med to establish and operate farmers’ markets in mid—size cities throughout the United States. Although some market locations were profitable, as a whole the venture proved to be a failure. By December 2010, NF M was taken over by creditors, and its stock became worthless. 10. Besides the items previously noted, the Hoods had the following receipts for 2010: Ruth's consulting income $52,000 Interest income— A City of Ciearwater bonds $1,400 Ford Motor Company bonds 900 CD issued by Weils’Fargo Bank , 1,100 interest on moneyimarket account at Tampa State Bank 210 3,610 Refund from SAVALOT (received 1/1311 0) 430 Loan repayment by Sarah Duval 4,000 Cash gifts fromfieth'separents 28,000 Federal income tax refund (2009 return) 290 Ruth’s consulting income includes a $3,000 payment for work she did in 2009 but does not include $5,000 she billed in November for work performed in 2010. One client who has owed her $6.000 for work done in 2008 was convicted of arson in 2010 and is serving time in state prison. Ruth feels certain that she will never collect the $6,000. In December 2009, the Hoods made major purchases of household items (e.g., appliances, furniture) at SAVALOT (a discount big box store). They cailed the manager when they-realized theyrdi’d not receive the advertised sale price. Consequently, the store corrected the mistake and sent a $5430 refund. Four years ago when his sister married, Paui lent her $4,000 to help pay for her honeymoon. Paul was surprised when Sarah paid him back on December 20, 2010. On March 20 ofreach year, Ruth’s parents always sent her cash as a birthday present. Lately, Ruth has immediately placed the funds in 3. § 529 plan for her children. 11. In addition to the items already mentioned, the Hoods had the foflowing expenditures for 2010: Ruth's contribution to her traditional ERA $5,000 Net gambling loss ' 1,000 Life insurance premiums , 4,200 Medical and dental expense not covered by insurance 6,200 Taxes— Ad valorem taxes on personal residence $4,800 State and localsalestaxes 3,200 8,000 Interest on home mortgage .. 4,000 Contributions— Salvation Army (Tampa branch) 1,200 Florida governor's election campaign fund 300 1,500 During 2010, the Hoods had gambling winnings of $1,200 and losses of $2,200—all supported by records. The $1,000 listed is the net loss result for the year. ‘ The Hoods maintain Whole life insurance policies on each other. The policies were issued by Hawk Assurance Corporation, and the named beneficiaries are their children. Of the medicai expenses listed, $1,200 were incurred in 2009 but not paid until early january 2010. E-3 E—4 Appendix E Comprehensive Tax Return Problems The Hoods maintain receipts of their purchases and can substantiate the $3,200 in sales taxes paid. Ruth contributed to the election campaign fund because she thinks the governor’s influence was instrumental in getting the Levy County land rezoned for commercial use (see item 6 above). 12. The Hoods maintain a household that includes two children, Anna Marie (age 19) and Roland (age 16). Anna Marie graduated from high school on May 18, 2010, and is undecided about college. Roland is a junior in high school. Anna Marie is an accomplished vocalist and during 2010 was able to earn $7,200 performing at various functions (e.g., weddings, funerals). She placed most of her earnings in a savings account and kept only a small amount to spend on herself. 13. Paul’s Form W—2 from Rest Inn shows $15,000 withheld for Federal income tax. The Hoods have made total quarterly income tax payments of $4,000. Ruth’s professional activity code is 541310. Relevant Social Security numbers are noted below: Social Security Name I Number Birth Date Paul 5. Hood I 111—11—1111 07101/1968 Ruth N. Hood 1234543781 03/20/1969 Anna Marie Hood 12345—6784 05102/1991 Roland Hood 123—45—6788 0613011994 REQUIREMENTS Prepare an income tax return (with appropriate schedules) for the Hoods for 2010. Make necessary assumptions for facts not stated in the problem. If a refund results, the taxpayers want it sent to them. The Hoods do not wish to contribute to the Presidentiai Election Campaign Fund. In the past several years, the Hoods have itemized their deductions from, AGI (have not claimed the standard deduction option). ; .,i~.y:r.:n= v-7 inn. u.!).1'a::‘;.r.VT‘T‘ ,_. L. ‘ Alan B. and Paula R. Turner (ages 43 and 39) are married and live at 4603 Dogwood Lane, Raleigh, NC 27611. Aian is a chemist, employed by Old North Chemical Cor— poration, and Paula is a selfemployed doctor of veterinary medicine. They use the cash basis for tax purposes. 1. Old North Chemical Corporation renders chemicals out of forest products and. has severai plants in the Carolinas and Georgia. Alan is the manager of the Raleigh facility at an annual salary of $90,000. Old North maintains a qualified defined contribution pension plan for its full~time employeos, but Alan did not contribute to it in 2010. The company also has a health insurance plan#Alan’s contribution for 2010 is $4,000. (The plan covers the employee, spouse, and their dependent children.) Because of the increased risk associated with the type of business involved (i.e., processing of chemicals), Old North provides alt of its employees with $200,000 of group term life insurance coverage. (See Table 4.3 in Chapter 4 of the text.) None of these items are included in Alan’s Form W2. 2. After an explosion occurred at Old North‘s Union (SC) plant killing two employees and injuring several others, Alan began to look for a safer job in the chemical industry. In this connection, he incurred the following expenses during 2010: Employment agency fee $3,200 Vita consultation, preparation, and distribution 1,800 Expenses in connection with job interviews 4,100 ...
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This note was uploaded on 03/27/2012 for the course ACCT 3321 taught by Professor Chambers during the Spring '09 term at Texas A&M University, Corpus Christi.

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Fall 2011 Tax I project - COMPREH RETURN P PROBLEM...

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