Due Wednesday APRIL 24 2013 beginning of class 60 POINTS
USE 2012 FIGURES, THRESHHOLDS, FORMS and RATES
Remember, you can collaborate with other class members. Every member must hand in his or her own project, even if it is a photocopy of the project. You must list on the first page of the memo who you collaborated with.
Here is what is needed:
1. The first sheet will be a client memo. It should succinctly explain any changed, omitted, or added figures which are NOT readily apparent from the clients’ information or from the tax return forms or tax tables. It is NOT good practice to make the memo go through the forms line by line. It IS good practice to anticipate and head off questions your clients will have, like "Why didn't you deduct ______?" or "Where did you get THAT number?" The memo will be about one page or less.
The top of the memo will list who you collaborated with.
2. Attach to that client memo any worksheets you used but are not part of the tax return itself.
3. Below the client memo and worksheet(s) should be a proper tax return, IN PROPER ATTACHMENT SEQUENCE order. See top right hand corner of the forms for the attachment sequence
You will be using the 1040, Schedules A, B, C, D, & E for sure, and other forms.
PLEASE PUT THE PROJECT AND THE FORMS IN THE PROPER ORDER.!!!
Ignore Alternative Minimum Tax, Form 6198, estimated tax penalty and Form 8582 for purposes of this project.
IRS allows rounding up (.50-.99) and rounding down (.01-.49)
WARNINGS:
I will not give 100% credit merely for the correct answer or figures on the tax return. I need to see your calculations and reasoning which bring you to the answers you provide. The worksheets and memo are important!
I am available to answer questions just as a client is. I will answer your questions as a client can, such as questions about these facts below. I can also answer questions about the directions I have given you above. However, if you want me to answer questions regarding tax preparation, forms, calculations or any other questions which a client cannot answer, I will dock points from the group’s final score on this project. Asking those types of questions may or may not be a wise use of points. It should be a last resort.
Problem I8-65 Kara and Brandon Arnold:
Start with problem I8-65 in Chapter I8 of the text, but assume it is 2012, not 2011. Please note that the relevanttax year in a; b; d; and g should be 2012, not 2011. In c, Roberts stock was worthless September 19, 2012, and it was purchased January 2, 2011.
Henry is a US citizen with a social security number. He lives with them all year. He provides none of his own support. His birthday is 7-10-2009.
Kara’s W-2 states $73,000 of earnings. $5,250 was withheld for state income taxes, $4,125 for FICA, and $11,515 for federal taxes. In box 10 of the W-2 there was $1,000 withheld pre-tax for child dependent care.
Brandon’s W-2 shows $30,000 of earning. $2,250 was withheld for state income taxes, $1,695 for FICA, and $4,935 for federal taxes.
Thus, $103,000 of salaries, $7,500 of state income tax withheld, $5,820 of FICA withheld, and $16,450 of federal tax withheld.
Davis Corp is a US domestic corporation. The 1099 states that ordinary dividends are $700; qualified dividends are $700.
They have a receipt from their church for $6,000 cash donation.
They were not required to file any 1099s.
Assume they used the Lutsen condo 15 days, not 16 days.
They received 1098s from their banks for the mortgage interest on the Lutsen property ($7,000) and their home ($8,400 and $3,800 points). They have no other homes.
They received 1099-Bs with the following information for the following sales of stock transactions. Some of these are in addition to prob 8-65:
Description / Date acquiredbox 1c / Date sold / Proceeds / Cost box 3
100 sh IBM / 2-2-2012 / 6-2-12 / 2,000 / 1,936
300 sh Apple / 8-9-12 / 23,436
200 sh Ford / 1-15-2007 / 7-5-12 / 15,200 / 22,012
100 sh Hostess / 7-7-2011 / 2-1-12 / 25 / 1,111
100 sh Litton / 4-14-12 / 4-15-12 / 20,000 / 7,000
3,000 sh
Kim Corp / 12-12-06 / 6-20-12 / 16,000 / 22,000
*Apple stock was purchased in 1996 for 1,500.
*The Litton stock was purchased by Brandon’s father Thomas for $7,000. Thomas died in 2011 when the value of the stock was $19,500. Brandon inherited the Litton stock.It was worth $20,000 when Brandon finally received it in 2012, and Brandon sold it immediately for $20,000.
They sold their car 1-5-12 for $5,000. Its basis was $21,000 purchased in 2001.
They sold some stock to Brandon’s sister on 8-16-12 for $4,000. Its basis was $6,000 purchased in 3-13-09.
HINT: Use Forms 8949 for the capital gains and losses. ONLY ONE OF THE BOXES A, B or C can be checked on a separate 8949. Therefore, you will need a few 8949s.
HINT: See the instructions for the 8949.
More additions to problem 8-65:
Brandon received a final 1041 K-1 from the Thomas Arnold Estate, the estate of his father. I showed interest income of $55 in box1 as well as $310 in box 2a and 2b ordinary and qualified dividends, and $500 in box 4a Net long-term capital gain. He also received as his share of the inheritance $25,000 on October 21, 2012.
Kara received a 1065 K-1 from her limited partnership interest in Tri-Gain Ltd Partnership. She is a passive investor, with no management activities or responsibilities. The limited partnership invests in apartment buildings and equipment which is leased out to customers. Box 2 shows $5,067 in rental real estate income and Box 3 shows ($2,589) loss from other rental activities. These are passive income and loss amounts. No need for a form 8582 for purposes of this project.
Brandon has a consulting business in addition to his work as a part time employee of the area’s hospital. Many small businesses look to him to advise them concerning the new Health Care act and it many wrinkles and complications. Its IRS business code is 999999. He does not have to issue any 1099s.
His business started well and continues to do well. Attached is his income statement for 2012:
Gross Receipts: 60,000
Expenses:
Advertising $2,011
TempJobs 7,800 (artwork and design for brochures)
Office rent 4,800
Licenses 100
Uncollectible accounts2,500
Accounting 200
Loan payments6,000
of which $2,100 is interest
Liability Insurance2,000
Supplies3,500
One of his clients owes him $2,500 but he has not been paid because the client filed bankruptcy in 2012. The debt was discharged. Thus, the “uncollectible accounts” listed above.
Hint: Brandon will not be eligible for section 199 deductions….he does not produce or manufacture products, and neither he nor Kara have any W-2 employees.
The Arnolds paid Brandon’s mother Roseann to take care of Henry while they are at work. They paid $10,000 total to her this year. Kara’s pre-tax Dependent Care fringe benefit from work paid for $1,000 of that total. It was included in box 10 of her W-2. There were no carryovers or forfeited amounts.
Roseann’s address is 113 Scout Drive Tacoma WA 84659. Her Social Security number is 000-00-1234.
AGI:$143,086
SOLUTION: Taxpayers must pay in $1,661. No need to calculate estimated tax penalty for purposes of this project.