Federal Taxation

Federal Taxation

instruction

Problem 1 (TAX RETURN)

 

Tim and Sarah Lawrence are married and file a joint return. Tim’s Social Securitynumber is 123-45-6789, and Sarah’s Social Security number is 111-11-1111. They

reside at 100 Olive Lane, Covington, LA 70434. They have two dependent children,

Sean and Debra, ages 12 and 16, respectively. Sean’s Social Security number is

123-45-6788, and Debra’s Social Security number is 123-45-6787. Tim is a self-employedbusinessperson (sole proprietor of an unincorporated business), and Sarah is a corporateexecutive. Tim has the following income and expenses from his business.

 

Gross income                                                                                            $325,000

Business expenses                                                                                201,000

 

 

Records related to Sarah’s employment provide the following information.

 

Salary                                                                                                          $145,000

Unreimbursed travel expenses (including $200 of meals)           1,100

Unreimbursed entertainment expenses                                            500

 

Other pertinent information for the tax year includes the following.

 

Proceeds from sale of stock acquired on July 15, 2017

(cost of $12,000),and sold on August 1, 2017                                              $ 9,800

 

Proceeds from sale of stock acquired on September 18, 2016

(cost of $5,000), and sold on October 5, 2017                                              3,800

 

Wages paid to full-time domestic worker for housekeeping and

child supervision                                                                                                 10,000

 

Interest income received                                                                                   7,000

Total itemized deductions (not including any potential

deductions above)                                                                                                          27,900

 

Federal income tax withheld                                                                            31,850

 

Estimated payments of Federal income tax                                                 34,000

 

 

 

Compute the net tax payable or refund due for Tim and Sarah Lawrence for 2017.

 

Download the necessary tax forms from the Internal Revenue website at:http://www.irs.gov/app/picklist/list/formsInstructions.html

 

By using an Adobe reader (free download available), you can save your work on the tax forms and be able to give them to me as PDF files. A PDF reader, which is free, is available for download at:http://get.adobe.com/reader/

 

For purposes of this tax return, please support all your computations with proper references. For example, if you are deducting items on Form 1040, Schedule A, line 7, for “Personal Property Taxes,” please list the items you are deducting.

 

 

 

 

 

 

 

PROBLEM 2

 

 

 

Bart and Elizabeth Forrest are married and have no dependents.They have asked you to advise them whether they  should filejointly or separately in 2017. They present you with the following information:

 

 

 

If they file separately, Bart and Elizabeth will split the real estate tax and mortgageinterest deductions equally.

 

  1. Write Bart and Elizabeth a letter in which you make and explain a recommendationon filing status for 2017. Bart and Elizabeth reside at 2003 HighlandDrive, Durham, NC 27707.

 

  1. Complete Bart’s Schedule A for 2017 (use the most current version of Schedule Aavailable). For this purpose, assume that Bart and Elizabeth file separate returns.Bart’s Social Security number is 123-45-6789.

 

 

 

 

 

 

PROBLEM 3

 

Assume the same facts as in Problem 56 (below). Kirby Turner is a 20% shareholder inThrasher Corporation. She is aware of the tax consequences of the variousitems listed on the Schedule K–1 (Form 1120S) she received but does not understandtheir effect on basis. She is considering selling her stock and wants to estimate the gainor loss that will result. In response to Kirby’s request for assistance, write a letter to her(1120 Garden Way, Elizabeth, NJ 07207), summarizing the changes to stock basis thatthe 2017 transactions caused.

 

 

Problem 56 facts

During 2017, Thrasher (a calendar year, accrual basis S corporation) has thefollowing transactions:

Sales                                                                                                                   $1,500,000

Cost of goods sold                                                                                                        900,000

Long-term capital gain                                                                                                 11,000

Short-term capital gain                                                                                               5,000

Salaries                                                                                                                              210,000

Qualified dividends from stock investments                                                     30,000

Rent expense                                                                                                                 170,000

Advertising expense                                                                                                   20,000

Interest expense on business loan                                                                       15,000

  • 1231 gain 25,000

Organizational expenditures                                                                                    3,000

Charitable contributions                                                                                            5,000

Bad debt (trade account receivable deemed to be uncollectible)            10,000

Cash dividend distributed to shareholders                                                        120,000

 

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