INDIVIDUAL TAX RETURN PROBLEM 6
Required:
·
Use the following
information to complete Paige Turner’s 2013 federal income tax return. If
information is missing, use reasonable assumptions to fill in the gaps.
·
Any required forms,
schedules, and instructions can be found at the IRS Web site (www.irs.gov). The instructions can be helpful in completing the forms.
Facts:
1. Paige Turner is single and has two children
from her previous marriage. Ali lives with Paige, and Paige provides more than
half of her support. Leif lives with his father, Will (Lief lived with Will for
all of 2013). Will provides more than half of Leif’s support. Paige pays
“alimony” of $400 per month to Will. The payments are to continue until Leif
reaches age 18, when they will be reduced to $150. Paige provides you with the
following additional information:
·
She uses the cash
method of accounting and a calendar year for reporting.
·
She wishes to
contribute to the presidential election campaign.
·
Paige lives at 523
Essex Street, Bangor, ME 04401.
Page C-10
·
Paige’s birthday is
May 31, 1975.
·
Ali’s birthday is
October 5, 2004.
·
Leif’s birthday is
December 1, 2002.
·
Paige’s Social
Security number is 007-16-4727.
·
Ali’s Social Security
number is 005-61-7232.
·
Leif’s Social Security
number is 004-23-3419.
·
Will’s Social Security
number is 006-45-6333.
·
She does not have any
foreign bank accounts or trusts.
2. Paige is employed as a nuclear engineer with
Atom Systems Consultants, Inc. (ASCI). ASCI’s federal employer identification
number is 79-1234466. Her annual salary is $70,000. ASCI has an extensive
fringe benefits program for its employees. Paige’s pay stubs indicate that she
had $7,230 withheld in federal taxes, $4,987 in state taxes, $4,495 in Social
Security taxes, and $1,051 in Medicare taxes.
3. Paige received salary of $70,000 (before
subtracting her 401(k) and flexible spending plan contributions). She
contributed $7,000 to her 401(k) account, and she contributed $3,600 to her
flexible spending account.
4. ASCI paid $397 of whole life insurance
premiums to cover Paige’s personal whole life insurance policy. ASCI also paid
health club dues of $900 to a nearby health club on Paige’s behalf.
5. Taking advantage of ASCI’s educational
assistance program, during the fall Paige enrolled in two graduate engineering
classes at a local college. ASCI paid her tuition, fees, and other
course-related costs of $2,300.
6. Paige received free parking in the company’s
security garage that would normally cost $200 per month.
7. Paige manages the safety program for ASCI. In
recognition of her superior handling of three potential crises during the year,
Paige was awarded the Employee Safety Award on December 15. The cash award was
$500.
8. On January 15, 2013, Paige’s father died. From
her father’s estate, she received stock valued at $30,000 (his basis was
$12,000) and her father’s house valued at $90,000 (his basis in the house was
$55,000).
9. Paige owns several other investments and in
February 2014 received a statement from her brokerage firm reporting the
interest and dividends earned on the investments for 2013. (See Exhibit
A.)
10. In addition to the investments discussed
above, Paige owns 1,000 shares of Grubstake Mining & Development common
stock. Grubstake is organized as an S corporation and has 100,000 shares
outstanding (S corp. ID number 45-4567890). Grubstake reported taxable income
of $200,000 and paid a distribution of $1.00 per share during the current year.
Paige tells you that Grubstake typically does not send out its K-1 reports
until late April. However, its preliminary report has been consistent with the
K-1 for many years. (See Exhibit A.) Paige does not materially participate
in Grubstake’s activities.
11. Paige slipped on a wet spot in front of a
computer store last July. She broke her ankle and was unable to work for two
weeks. She incurred $1,300 in medical costs, all of which were paid by the
owner of the store. The store also gave her $1,000 for pain and suffering
resulting from the injury. ASCI continued to pay her salary during the two
weeks she missed because of the accident. ASCI’s plan also paid her $1,200 in
disability pay for the time she was unable to work. Under this plan ASCI pays
the premiums for the disability insurance as a taxable fringe benefit.
Replace “2011” with “2013” I couldn’t edit it
EXHIBIT A
Forms 1099 and 1098
Page C-11
12. Paige received a Form 1099-B from her broker
for the sale of the following securities during 2012. The adjusted basis
amounts were reported to the IRS.
|
Security |
Sale Date |
Purchase Date |
Sales Price |
Commission Paid on Sale |
Her Basis |
|
Nebraska state bonds |
03/14/13 |
10/22/07 |
$2,300 |
$160 |
$1,890 |
|
Cassill Corp (500 shares) |
10/20/13 |
02/19/12 |
$8,500 |
$425 |
$9,760 |
13. In addition to the taxes withheld from her
salary, she also made timely estimated federal tax payments of $175 per quarter
and timely estimated state income tax payments of $150 for the first three
quarters. The $150 fourth-quarter state payment was made on December 28, 2013.
Paige would like to receive a refund for any overpayment.
14. Because of her busy work schedule, Paige was
unable to provide her accountant with the tax documents necessary for filing
her 2012 state and federal income tax returns by the due date (April 17, 2013).
In filing her extension on April 17, 2013, she made a federal tax payment of
$750. Her return was eventually filed on June 25, 2013. In August 2013, she
received a federal refund of $180 and a state tax refund of $60. Her itemized
deductions for 2012 were $12,430.
15. Paige found a renter for her father’s house on
August 1. The monthly rent is $400, and the lease agreement is for one year.
The lease requires the tenant to pay the first and last months’ rent and a $400
security deposit. The security deposit is to be returned at the end of the
lease if the property is in good condition. On August 1, Paige received $1,200
from the tenant per the terms of the lease agreement. In November, the plumbing
froze and several pipes burst. The tenant had the repairs made and paid the
$300 bill. In December, he reduced his rental payment to $100 to compensate for
the plumbing repairs. Paige provides you with the following additional
information for the rental in 2013.
|
Property taxes |
$770 |
|
Other maintenance expenses |
285 |
|
Insurance expense |
495 |
|
Management fee |
350 |
|
Depreciation (to be computed) |
? |
Page C-12
The rental property is located at 35 Harvest
Street, Orono, ME 04473. Local practice is to allocate 12 percent of the fair
market value of the property to the land. (See #8.) Paige makes all
decisions with respect to the property.
16. Paige paid $2,050 in real estate taxes on her
principal residence. The real estate tax is used to pay for town schools and
other municipal services.
17. Paige drives a 2012 Acura TL. Her car
registration fee (based on the car year) is $50 and covers the period 1/1/13
through 12/31/13. In addition, she paid $280 in property tax to the state based
on the book value of the car.
18. In addition to the medical costs presented
in #11, Paige incurred the following unreimbursed medical costs:
|
Dentist |
$ 310 |
|
Doctor |
390 |
|
Prescription drugs |
215 |
|
Over-the-counter drugs |
140 |
|
Optometrist |
125 |
|
Emergency room charges |
440 |
|
LASIK eye surgery |
2,000 |
|
Chiropractor |
265 |
19. On March 1, Paige took advantage of low
interest rates and refinanced her $75,000 home mortgage with her original
lender. The new home loan is for 15 years. She paid $215 in closing costs and
$1,500 in discount points (prepaid interest) to obtain the loan. The house is
worth $155,000, and Paige’s basis in the house is $90,000. As part of the
refinancing arrangement, she also obtained a $10,000 home-equity loan. She used
the proceeds from the home-equity loan to reduce the balance due on her credit
cards. Paige received several Form 1098 statements from her bank for interest
paid by her in 2011. Details appear below. (See also Exhibit A on
page C-11.)
|
Primary home mortgage |
$7,100 |
|
Home-equity loan |
435 |
|
Credit cards |
498 |
|
Car loan |
390 |
20. On May 14, 2013, Paige contributed clothing to
the Salvation Army. The original cost of the clothing was $740. She has
substantiation valuing the donation at $360. The Salvation Army is located at
350 Stone Ridge Road, Bangor, ME 04401. In addition, she made the following
cash contributions and received a statement from each of the following
organizations acknowledging her contribution:
|
Larkin College |
$850 |
|
United Way |
125 |
|
First Methodist Church |
790 |
|
Amos House (homeless shelter) |
200 |
|
Local Chamber of Commerce |
100 |
Page C-13
21. On April 1, 2013, Paige’s house was robbed.
She apparently interrupted the burglar because all that’s missing is an antique
brooch she inherited from her grandmother (June 12, 2006) and $300 in cash.
Unfortunately, she didn’t have a separate rider on her insurance policy
covering the jewelry. Therefore, the insurance company reimbursed her only $500
for the brooch. Her basis in the brooch was $6,000, and its fair market value
was $7,500. Her insurance policy also limits to $100 the amount of cash that
can be claimed in a theft.
22. Paige sells real estate in the evening and on
weekends. She runs her business from a rental office she shares with several
other realtors (692 River Road Bangor, ME 04401). The name of her business is
Turner Real Estate and the federal identification number is 05-8799561. Her
business code is 531210. Paige has been operating in a business-like way since
2003 and has always shown a profit. She had the following income and expenses
from her business:
|
Commissions earned |
$21,250 |
|
Expenses: |
|
|
Advertising |
2,200 |
|
Telephone |
95 |
|
Real estate license |
130 |
|
Rent |
6,000 |
|
Utilities |
600 |
23. She has used her Acura TL in her business
since July 1, 2013. During 2013, she properly documented 6,000 business miles
(1,000 miles each month). The total mileage on her car (i.e., business- and
personal-use miles) during the year was 15,000 miles (including 200 miles
commuting to and from the real estate office). In 2013, Paige elects to use the
standard mileage method to calculate her car expenses. She spent $45 on tolls
and $135 on parking related to the real estate business.
24. Paige’s company has an accountable expense
reimbursement plan for employees from which Paige receives $12,000 for the
following expenses:
|
Airfare |
$4,700 |
|
Hotel |
3,400 |
|
Meals |
2,000 |
|
Car rentals |
600 |
|
Entertainment |
900 |
|
Incidentals |
400 |
25. During 2013, Paige also paid $295 for business
publications other than those paid for by her employer and $325 for a local CPA
to prepare her 2012 tax return.
