avid R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a elf-employed consultant specializing in retail management, and Ella is a dental hygienist for a chain of dental clinics. • David earned consulting fees of $145,000 in 2022. He maintains his own office and pays for all business expenses. The Coles are adequately covered by the medical plan provided by Ella's employer but have chosen not to participate in its § 401(k) retirement plan. . David's employment-related expenses for 2022 are summarized below. Airfare Lodging Meals from restaurants (during travel status) Entertainment $8,800 4,320 2,400 3,600 800 900 Office supplies (includes postage, overnight delivery, and copying) 1,500 Ground transportation (e.g., limos, rental cars, and taxis) Business gifts

avid R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a elf-employed consultant specializing in retail management, and Ella is a dental hygienist for a chain of dental clinics. • David earned consulting fees of $145,000 in 2022. He maintains his own office and pays for all business expenses. The Coles are adequately covered by the medical plan provided by Ella's employer but have chosen not to participate in its § 401(k) retirement plan. . David's employment-related expenses for 2022 are summarized below. Airfare Lodging Meals from restaurants (during travel status) Entertainment $8,800 4,320 2,400 3,600 800 900 Office supplies (includes postage, overnight delivery, and copying) 1,500 Ground transportation (e.g., limos, rental cars, and taxis) Business gifts

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter3: Income Sources

Section: Chapter Questions

Problem 30P

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David R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a self-employed consultant specializing in retail management, and Ella is a dental hygienist for a chain of dental clinics. David earned consulting fees of 145,000 in 2018. He maintains his own office and pays for all business expenses. The Coles are adequately covered by the medical plan provided by Ellas employer but have chosen not to participate in its 401(k) retirement plan. Davids employment-related expenses for 2018 are summarized below. The entertainment involved taking clients to sporting and musical events. The business gifts consisted of 50 gift certificates to a national restaurant. These were sent by David during the Christmas holidays to 18 of his major clients. In addition, David drove his 2016 Ford Expedition 11,000 miles for business and 3,000 for personal use during 2018. He purchased the Expedition on August 15, 2015, and has always used the automatic (standard) mileage method for tax purposes. Parking and tolls relating to business use total 340 in 2018. When the Coles purchased their present residence in April 2015, they devoted 450 of the 3,000 square feet of living space to an office for David. The property cost 440,000 (40,000 of which is attributable to the land) and has since appreciated in value. Expenses relating to the residence in 2018 (except for mortgage interest and property taxes; see below) are as follows: In terms of depreciation, the Coles use the MACRS percentage tables applicable to 39-year nonresidential real property. As to depreciable property (e.g., office furniture), David tries to avoid capitalization and uses whatever method provides the fastest write-off for tax purposes. Ella works at a variety of offices as a substitute when a hygienist is ill or on vacation or when one of the clinics is particularly busy (e.g., prior to the beginning of the school year). Besides her transportation, she must provide and maintain her own uniforms. Her expenses for 2018 appear below. Ellas salary for the year is 42,000, and her Form W-2 for the year shows income tax withholdings of 5,000 (Federal) and 1,000 (state) and the proper amount of Social Security and Medicare taxes. Besides die items already mentioned, die Coles had the following receipts during 2018. For several years, the Coles household has included Davids divorced mother, Sarah, who has been claimed as their dependent. In late December 2017, Sarah unexpectedly died of coronary arrest in her sleep. Unknown to Ella and David, Sarah had a life insurance policy and a savings account (with David as the designated beneficiary of each). In 2017, the Coles purchased two ATVs for 14,000. After several near mishaps, they decided that the sport was too dangerous. In 2018, they sold the ATVs to their neighbor. Additional expenditures for 2018 include: In 2018, the Coles made quarterly estimated tax payments of 6,000 (Federal) and 500 (state) for a total of 24,000 (Federal) and 2,000 (state). Part 1Tax Computation Using the appropriate forms and schedules, compute the Coles Federal income tax for 2018. Disregard the alternative minimum tax (AMT) and various education credits since these items are not discussed until later in the text (Chapters 12 and 13). Relevant Social Security numbers are: The Coles do not want to contribute to the Presidential Election Campaign Fund. Also, they want any overpayment of tax refunded to them and not applied toward next years tax liability. David will have a self-employment tax liability; refer to Exhibit 13 9 in Chapter 13 to compute this liability. Suggested software: ProConnect Tax Online. Part 2Follow-Up Advice Ella has always wanted to pursue a career in nursing. To this end, she has earned a substantial number of college credits on a part-time basis. With Sarah no longer requiring home care, Ella believes that she can now complete her degree by attending college on a full-time basis. David would like to know how Ellas plans will affect their income tax position. Specifically, he wants to know: How much Federal income tax they will save if Ella quits her job. Any tax benefits that might be available from the cost of the education. Write a letter to David addressing these concerns. Note: In making your projections, use the information generated in Part 1 and assume that the year remains 2018. Also disregard any consideration of the educational tax credits (i.e., American Opportunity and lifetime learning) since they are not discussed until Chapter 13.
Sandy and John Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2022, Sandy worked as a computer technician at a local university earning a salary of $152,100, and John worked part time as a receptionist for a law firm earning a salary of $29,100. Sandy also does some Web design work on the side and reported revenues of $4,100 and associated expenses of $800. The Fergusons received $820 in qualified dividends and a $205 refund of their state income taxes. The Fergusons always itemize their deductions, and their itemized deductions were well over the standard deduction amount last year. Use Exhibit 8-10, Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2022 AMT exemption for reference. The Fergusons reported making the following payments during the year: State income taxes of $4,425. Federal tax withholding of $21,000. Alimony payments to Sandy's former spouse of $10,050 (divorced 12/31/2014). Child support payments for Sandy's child with…
Sandy and John Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2022, Sandy worked as a computer technician at a local university earning a salary of $152,100, and John worked part time as a receptionist for a law firm earning a salary of $29,100. Sandy also does some Web design work on the side and reported revenues of $4,100 and associated expenses of $800. The Fergusons received $820 in qualified dividends and a $205 refund of their state income taxes. The Fergusons always itemize their deductions, and their itemized deductions were well over the standard deduction amount last year. Use Exhibit 8-10, Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2022 AMT exemption for reference. The Fergusons reported making the following payments during the year: State income taxes of $4,425. Federal tax withholding of $21,000. Alimony payments to Sandy's former spouse of $10,050 (divorced 12/31/2014). Child support payments for Sandy's child with…
Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM87501. Lance works for the convention bureau of the local Chamber of Commerce, andWanda is employed part-time as a paralegal for a law firm.During 2018, the Deans had the following receipts:Salaries ($60,000 for Lance, $41,000 for Wanda) $101,000Interest income—City of Albuquerque general purpose bonds $1,000Ford Motor company bonds 1,100Ally Bank certificate of deposit 400 2,500Child support payments from John Allen 7,200Annual gifts from parents 26,000Settlement from Roadrunner Touring Company 90,000Lottery winnings 600Federal income tax refund (for tax year 2017) 400Wanda was previously married to John Allen. When they divorced several yearsago, Wanda was awarded custody of their two children, Penny and Kyle. (Note:Wanda has never issued a Form 8332 waiver.) Under the divorce decree, John wasobligated to pay alimony and child support—the alimony payments were to terminateif Wanda remarried.In July, while…
Sandy and John Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2022, Sandy worked as a computer technician at a local university earning a salary of $152,600, and John worked part time as a receptionist for a law firm earning a salary of $29,600. Sandy also does some Web design work on the side and reported revenues of $4,600 and associated expenses of $1,050. The Fergusons received $920 in qualified dividends and a $230 refund of their state income taxes. The Fergusons always itemize their deductions, get the full benefit of deducting the entire amount of state income taxes paid, and their itemized deductions were well over the standard deduction amount last year. Use Exhibit 8-10, Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2022 AMT exemption for reference. The Fergusons reported making the following payments during the year: State income taxes of $4,550. Federal tax withholding of $21,000. Alimony payments to Sandy's former spouse…
Sandy and John Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2022, Sandy worked as a computer technician at a local university earning a salary of $153,700, and John worked part time as a receptionist for a law firm earning a salary of $30,700. Sandy also does some Web design work on the side and reported revenues of $5,700 and associated expenses of $1,600. The Fergusons received $1,140 in qualified dividends and a $285 refund of their state income taxes. The Fergusons always itemize their deductions, get the full benefit of deducting the entire amount of state income taxes paid, and their itemized deductions were well over the standard deduction amount last year. Use Exhibit 8-10, Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2022 AMT exemption for reference. The Fergusons reported making the following payments during the year: • State income taxes of $4,825. Federal tax withholding of $21,000. • Alimony payments to Sandy's former…
Sandy and John Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2022, Sandy worked as a computer technician at a local university, earning a salary of $152,200, and John worked part time as a receptionist for a law firm, earning a salary of $29,200. Sandy also does some Web design work on the side and reported revenues of $4,200 and associated expenses of $850. The Fergusons received $800 in qualified dividends and a $210 refund of their state income taxes. The Fergusons always itemize their deductions, get the full benefit of deducting the entire amount of state income taxes paid, and their itemized deductions were well over the standard deduction amount last year. Use Exhibit 8-10. Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2022 AMT exemption for reference. The Fergusons reported making the following payments during the year: State income taxes of $4,450. Federal tax withholding of $21,000. Alimony payments to Sandy's former spouse…
Sandy and John Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2022, Sandy worked as a computer technician at a local university, earning a salary of $152,000, and John worked part time as a receptionist for a law firm, earning a salary of $29,000. Sandy also does some Web design work on the side and reported revenues of $4,000 and associated expenses of $750. The Fergusons received $800 in qualified dividends and a $200 refund of their state income taxes. The Fergusons always itemize their deductions, and their itemized deductions were well over the standard deduction amount last year. Assume that in the previous year, Fergusons got the full benefit of deducting the entire amount of their state income taxes. Use Exhibit 8-10. Tax Rate Schedule. Dividends and Capital Gains Tax Rates. 2022 AMT exemption for reference. The Fergusons reported making the following payments during the year: • State income taxes of $4,400. Federal tax withholding of…
Sandy and John Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2023, Sandy worked as a computer technician at a local university earning a salary of $153,500, and John worked part time as a receptionist for a law firm, earning a salary of $30,500. Sandy also does some Web design work on the side and reported revenues of $5,500 and associated expenses of $1,500. The Fergusons received $1,100 in qualified dividends and a $275 refund of their state income taxes. The Fergusons always itemize their deductions, get the full benefit of deducting the entire amount of state income taxes paid, and their itemized deductions were well over the standard deduction amount last year. Use Exhibit 8-10, Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2023 AMT exemption for reference. The Fergusons reported making the following payments during the year: • State income taxes of $4,775. Federal tax withholding of $21,000. • Alimony payments to Sandy's former…
Paul and Karen Kent are married, and both are employed (Paul earned $44,000 and Karen earned $9,000 in 2021). Paul and Karen have two dependent children, Samuel and Joy, both under the age of 13. Paul and Karen pay $3,800 ($1,900 for each child) to Sunnyside Day Care Center (422 Sycamore Road, Ft. Worth, TX 76028; Employer Identification Number 11-2345678), to care for their children while they are working. Assuming that Paul and Karen file a joint return, what, if any, is their tax credit for child and dependent care expenses?
John Benson, age 40, is single. His Social Security number is 111-11-1111, and he resides at 150 Highway 51, Tangipahoa, LA 70465. John has a 5-year-old child, Kendra, who lives with her mother, Katy. As a result of his divorce in 2016, John pays alimony of 6,000 per year to Katy and child support of 12,000. The 12,000 of child support covers 65% of Katys costs of rearing Kendra. Kendras Social Security number is 123-45-6789, and Katys is 123-45-6788. Johns mother, Sally, lived with him until her death in early September 2019. He incurred and paid medical expenses for her of 15,588 and other support payments of 11,000. Sallys only sources of income were 5,500 of interest income on certificates of deposit and 5,600 of Social Security benefits, which she spent on her medical expenses and on maintenance of Johns household. Sallys Social Security number was 123-45-6787. John is employed by the Highway Department of the State of Louisiana in an executive position. His salary is 95,000. The appropriate amounts of Social Security tax and Medicare tax were withheld. In addition, 9,500 was withheld for Federal income taxes and 4,000 was withheld for state income taxes. In addition to his salary, Johns employer provides him with the following fringe benefits. Group term life insurance with a maturity value of 95,000; the cost of the premiums for the employer was 295. Group health insurance plan; Johns employer paid premiums of 5,800 for his coverage. The plan paid 2,600 for Johns medical expenses during the year. Upon the death of his aunt Josie in December 2018, John, her only recognized heir, inherited the following assets. Three months prior to her death, Josie gave John a mountain cabin. Her adjusted basis for the mountain cabin was 120,000, and the fair market value was 195,000. No gift taxes were paid. During the year, John reported the following transactions. On February 1, 2019, he sold for 45,000 Microsoft stock that he inherited from his father four years ago. His fathers adjusted basis was 49,000, and the fair market value at the date of the fathers death was 41,000. The car John inherited from Josie was destroyed in a wreck on October 1, 2019. He had loaned the car to Katy to use for a two-week period while the engine in her car was being replaced. Fortunately, neither Katy nor Kendra was injured. John received insurance proceeds of 16,000, the fair market value of the car on October 1, 2019. On December 28, 2019, John sold the 300 acres of land to his brother, James, for its fair market value of 160,000. James planned on using the land for his dairy farm. Other sources of income for John are: Potential itemized deductions for John, in addition to items already mentioned, are: Part 1Tax Computation Compute Johns net tax payable or refund due for 2019. Part 2Tax Planning Assume that rather than selling the land to James, John is considering leasing it to him for 12,000 annually with the lease beginning on October 1, 2019. James would prepay the lease payments through December 31, 2019. Thereafter, he would make monthly lease payments at the beginning of each month. What effect would this have on Johns 2019 tax liability? What potential problem might John encounter? Write a letter to John in which you advise him of the tax consequences of leasing versus selling. Also prepare a memo addressing these issues for the tax files.
Ashley Panda lives at 1310 Meadow Lane, Wayne, OH 43466, and her Social Security number is 123-45-6777. Ashley is single and has a 20-year-old son, Bill. His Social Security number is 111-11-1112. Bill lives with Ashley, and she fully supports him. Bill spent 2018 traveling in Europe and was not a college student. He had gross income of 4,655 in 2018. Bill paid 4,000 of lodging expenses that Ashley reimbursed after they were fully documented. Ashley paid the 4,000 to Bill using a check from her sole proprietorship. That amount is not included in the items listed below. Ashley had substantial health problems during 2018, and many of her expenses were not reimbursed by her health insurance. Ashley owns Panda Enterprises, LLC (98-7654321), a data processing service that she operates as a sole proprietorship. Her business is located at 456 Hill Street, Wayne, OH 43466. The business activity code is 514210. Her 2018 Form 1040, Schedule C for Panda Enterprises shows revenues of 315,000, office expenses of 66,759, employee salary of 63,000, employee payroll taxes of 4,820, business meal expenses (before the 50% reduction) of 22,000, and rent expense of 34,000. The rent expense includes payments related to renting an office (30,000) and payments related to renting various equipment (4,000). There is no depreciation because all depreciable equipment owned has been fully depreciated in previous years. No fringe benefits are provided to the employee. Ashley personally purchases health insurance on herself and Bill. The premiums are 23,000 per year. Ashley has an extensive stock portfolio and has prepared the following analysis: Note: Ashley received a Form 1099B from her stockbroker that included the adjusted basis and sales proceeds for each of her stock transactions. The per-share cost includes commissions, and the per-share selling price is net of commissions. Also, the dividends are the actual dividends received in 2018, and these are both ordinary dividends and qualified dividends. Ashley had 800 of interest income from State of Ohio bonds and 600 of interest income on her Wayne Savings Bank account. She paid 25,000 of alimony to her former husband. His Social Security number is 123-45-6788. Ashley itemizes her deductions and provides the following information, which may be relevant to her return: Ashley made a 26,000 estimated Federal income tax payment, does not want any of her taxes to finance presidential elections, has no foreign bank accounts or trusts, and wants any refund to be applied against her 2019 taxes. Compute Ashleys net tax payable or refund due for 2018. If you use tax forms for your computations, you will need Form 1040 and its Schedules 1, 4, 5, A, C, D, and SE and Form 8949. Ashley qualifies for the 199A deduction for qualified business income. Be sure to include that in your calculations. Suggested software: ProConnect Tax Online.