INCOME TAX RETURN PROBLEM

INCOME TAX RETURN PROBLEM

Tax Return Problem Cases ACCT 440

Spring 2016

Instructions: Use the relevant tax forms for your computations. You must download the relevant forms from the IRS website. Do not use tax software to prepare the returns. You need not complete the state tax returns. Make sure to include all the relevant supporting schedules for your federal return.

There are a total of five returns assignments. All five returns must be turned in no later than Monday, May 2 at 5:00 p.m.  Please turn in the returns in one envelope to room JH 1111.

This is an individual assignment. You are not allowed to discuss or share the answers with any other student, friend, tax professional, colleague or a professor.

Tax Return 1:

 Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local chamber of commerce, while Wanda is employed part-time as a paralegal for a law firm.

a.    During 2014, the deans had the following receipts:

Salaries ($60,000 for Lance, $41,000 for Wanda)

Interestincome–                                                                                        $101,000

City of Albuquerque general purpose bonds $1,000
Ford Motor Company bonds 1,100
Ally Bank certificate of deposit                  400                 2,500
Child support payment from John Allen 7,200
Annual gift from parents 26,000
Settlement from Roadrunner Touring Company 90,000
Lottery winnings 600
Federal income tax refund (for tax year 2013) 400

Wanda was previously married to John Allen. When they divorced several years ago, Wanda was awarded custody of their two children, Penny and Kyle. (Note: Wanda was never issued a form 8332 wavier.) under the divorce decree, John was obligated to pay alimony and child support–the alimony payments were to terminate if Wanda remarried.

In July, while going to lunch in downtown Santa Fe, Wanda was injured by a tour bus. As the driver was clearly at fault, the owner of the bus, Roadrunner Touring Company, paid for her medical expenses (including one-week stay in a hospital). To avoid a lawsuit, Roadrunner also transferred

$90,000 to her in settlement of the personal injuries she sustained.

The Deans has the following expenditures for 2014:

Medical expenses (not coveredbyinsurance)                                                                         $7,200 Taxes-

Property taxes on personal residence $3,600  
State of new Mexico income tax (includes amount  
withheld from wages during 2014)             4,200 7,800
Interest on home mortgage   6,000
Paid church pledge   3,600
Life insurance premiums (policy on Lance’s life)   1,200
Contributions to traditional IRA (on Wanda’s behalf)   5,000
Traffic fines   300
Contributions to the reelection campaign fund of the    
major of Santa Fe   500
Funeral expense for Wayne Boyle   6,300

The life insurance policy was taken out but several years ago and designates Wanda as the beneficiary. As a part time employee, Wanda is excluded from coverage under her employer’s pension plan.

Consequently, she provides for her own retirement with a traditional IRA obtained at a local trust company. Because the mayor is a member of the local Chamber of Commerce, Lance felt compelled to make the political contribution.

The Deans’ household includes the following, for whom they provide more than half of the support:

  Social Security Number Birth Date
Lance Dean (age 42) 123-45-6786 12/16/1972
Wanda Dean (age 40) 123-45-6787 08/08/1974
Penny Allen (age 19) 123-45-6788 10/09/1995
Kyle Allen (age 17) 123-45-6789 05/03/1997
Wayne Boyle (age75) 123-45-6785 06/15/1939

Penny graduated from high school on May 9, 2014, and is undecided about college. During 2014, she earned $8,500 (placed in a savings account) playing a harp in the lobby if a local hotel. Wayne is Wanda’s widower father, who died on January 20, 2014. For the past few years, Wayne qualified as a dependent of the Deans.

Federal income tax withheld is $5200 (Lance) and $3000 (Wanda). The proper amount of social security and Medicare tax was withheld.

Determine the Federal income tax for 2014 for the Deans on a joint return by completing the appropriate forms. They do not want to contribute to the Presidential Election Campaign Fund. All members of the family had health care coverage for all of 2014. If an overpayment results, it is to be refunded to them.

Tax Return 2:

Logan B Taylor is a widow whose wife, Sara died on June 6, 2012. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. During 2014, he had the following receipts:

Salary   $80,000
Interest income-    
City of Springfield general purpose bond $3,000  
Money market account at Omni Bank 300  
Savings account at Boone State Bank 1,100 4,400
Inheritance from Daniel   60,000
Life insurances proceeds   200,000
Amount from sale of St. Louis lot   80,000
Proceeds from estate sale   9,000
Federal income tax refund (for 2013 tax overpayment)   700

Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2014. Logan also was the designated beneficiary of an insurance policy on Daniel’s life with a maturity value of $200,000. The lot in St. Louis was purchased on May 2, 2009, for $85,000 and held as an investment. As the neighborhood has deteriorated, Logan decided to cut his losses and sold the lot on January 5, 2014, for $80,000. The estate sale consisted largely of items belonging to Sara and Daniel (e.g., camper, boat, furniture, and fishing and hunting equipment). Logan estimates that the property sold originally cost at least twice the

$9,000 he received and has declined or stayed the same in value since Sara and Daniel died.

Logan’s expenditures for 2014 include the following:

Medicare expenses (including $10,500fordental)                                                       $11,500 Taxes—

State if Missouri income tax (includes withholdingsduring2014)            $3,200

Property taxes onpersonalresidence                                           4,500               7,700

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